Where to still get the required franchise funding if everything else fails

You’ve made the decision that owning and operating a franchise is what you want to do in the future. Even the franchise chain you want to join has been decided upon.

Nevertheless, you speak with the franchisor, your local banks, and private franchise lenders only to learn that you are unable to obtain the capital (money) you require to complete this.

For the vast majority of franchises, you will need to figure out how to raise the money necessary for the franchise purchase, the franchise build-out, which may include real estate and equipment as needed, as well as initial and ongoing working capital to pay for your daily expenses for labor, marketing, inventory, or supplies.

But where do you turn next, or to put it more simply, is there somewhere else to turn if you are unable to obtain the required capital through traditional sources of financing like banks, SBA loans, retirement funds, franchisor programs, and private franchise lenders?

Financing Your Franchise When All Else Fails

First and foremost, understand that you are not alone in your inability to obtain traditional financing. Given the continued deplorable state of our small business loan and capital markets, those who cannot obtain conventional business loans to finance their franchise dreams are actually in the majority today.

Second, and more importantly, none of this has to prevent you from moving forward.

Getting yourself and your company’s goods and services in front of customers is the most important part of running a business, including a franchise. This involves raising awareness of your brand and educating consumers about the benefits of your goods and services.

As a result, the success of your business depends on your ability to sell it to customers, along with its products, and then follow through.

The same applies to raising capital to buy or develop your franchise. How do you expect to be able to sell your business to potential customers if you can’t sell your business concept and its potential to potential financiers?

Sell Your Concept – Local Investors

One of the best things about franchise companies is that, at least the most well-known ones, they essentially sell themselves.

The question then becomes, “Where or who do you sell to? “, given your capacity for selling and that of your franchise.”

And the reply is local investors, or more precisely, anybody and everyone who will hear you out and your story.

Here’s why:

Many business people and other professionals in every city in this country who have achieved success want to give back by assisting other entrepreneurs in achieving success.

Doctors, attorneys, accountants, and other business professionals frequently invest in small businesses in their own neighborhoods. At this point, it doesn’t really matter whether these are accredited investors or not. What matters is that they have extra cash on hand and are eager to invest in your business.

Additionally, the majority of these individual investors are always looking for new opportunities to invest in, which makes your job as a salesperson that much simpler.

The plan is to approach them and sell to them. However, you must sell the investment — what the investor can anticipate getting out of it — rather than the advantages of your potential products and services.

This includes letting potential investors and partners know what is expected of them in terms of an initial investment and ongoing financial support as well as the rewards they can anticipate in exchange for their support. Now, regardless of how much pleasure they derive from playing alone, no investor will agree to finance your deal if they believe they will lose money.

No investor will also believe that they will see a doubling of their investment every six months for the duration of the business.

They do, however, anticipate getting paid for giving you their hard-earned money. Tell them what to expect, and be honest with them, and then gauge interest in joining.

Another advantage is that it’s not just about getting money to launch and run your franchise.

Franchise owners actually favor wealthy partners, co-managers, investors, or whatever else you want to call them. It also means that, should the business experience a bad month of season—which all businesses experience from time to time—it can return to the money well to get over that temporary downturn, which makes the franchisor’s decision to approve you that much easier. This benefits everyone within the system.

Additionally, your franchise receives one or more additional mentors who can assist you in managing that business – from people who have already been there and experienced that.

And not only do these local investors have the chance to feel good about giving back, but they also stand a chance of earning higher returns on their money than they would if they simply invested it in low yield bonds, the stock market, or pitiful money market accounts (this is a selling point, by the way).

Here is an example of a triumph. When I was a new commercial lender, a man came to me to request a $350,000 franchise loan for a new IHOP restaurant. Bobby, a 40-year-old man, was qualified in every way. When he was a senior in high school, he started working as a dishwashing apprentice at an IHOP restaurant. He eventually worked his way up from dishwashing to serving to cooking to shift managing to general managing, and he was the general manager of his specific IHOP for over 7 years, during which time that particular restaurant experienced some of its highest levels of revenue growth in its lengthy history.

But Bobby also lacked the funds for a down payment, which was necessary for a loan, and he had poor personal credit, both of which were deal-breakers when looking for a business loan.

However, he had done his homework, found the ideal spot for a new IHOP, and obtained the franchisor’s approval for that location.

Bobby, however, was unable to secure a business loan from anyone.

As a result, we began debating our other options and ultimately created a straightforward Private Place Memorandum (PPM) – as required by Reg D with the SEC – before beginning to solicit investment from local professionals.

Short version: Bobby was able to secure the support of four local doctors who agreed to continue funding the restaurant if and when necessary in addition to providing the funds he needed to build his new store.

Again, to cut a long story short, Bobby went out and sold both himself and his idea, and as a result, he was able to bypass traditional financing and obtain the funding he required. Bobby currently owns and manages seven (7) franchise restaurants overall with his partners.

Finding Local Investors

Networking is the best (and the only real) strategy for locating regional investors.

This could entail joining and attending neighborhood civil or social clubs, as well as discovering and going to regional civil and professional events (your chamber of commerce should have a current listing). You could go to any and every event in your area, whether it’s public or private. Or you could just knock on doors as you walk around.

This means talking to anyone who will listen, including those who won’t, in order to get your name, yourself, and your business concept out there and circulating.

The reason is that, more often than not, the people you do speak with are not the ones who invest in you but are instead the ones who spread the word about your offer to those other investors who will.

As a result, you must find local gatekeepers, such as CPAs, attorneys, and other business owners, who either have the ability to invest or are more likely to know those who do. Additionally, if a local investor heard about a deal from a source they are familiar with and trust, they are more likely to pay attention to that deal.

So, if you believe
you can succeed in business and that your ability to sell that business is the key to your success, go out there and start looking for investors for your company. Furthermore, keep in mind that raising money is only a temporary endeavor, even though no one enjoys spending time doing it (they would rather work on expanding their business). As opposed to your business where you must continuously sell it, once it is finished, it is finished.