You’ve considered all the alternatives, performed a thorough due diligence, and decided that you want to purchase a computer franchise. The next big step is investigating how to finance your new endeavor.
Financing Your Computer Franchise
Fortunately, financing a franchise is often easier than a stand-alone start-up because you’re joining an established system with a proven track record. When you’re financing a franchise:
- Lenders are aware that you’re entering a strong, growth-oriented industry. According to data from the International Franchise Association, the franchising sector as a whole has outpaced the growth of the U.S. economy for the past five years, producing $994 billion in economic output and creating over a million new jobs.
- Lenders have the assurance that as a franchisee, you’ll benefit from the experience and backing of the franchisor. They know that the training, ongoing support, and assistance with marketing you’ll receive can help your new business get off the ground.
- Lenders can look at the Franchise Disclosure Document (FDD) to see how other locations have performed and gain some insight into the stability, viability, and potential of your franchise concept. Thisalso helps if you’re looking to finance a franchise like Experimac, which deals with a well-established, popular brand and has multiple locations.
Advance Preparation Is Vital When You’re Seeking Financing
Before you begin searching for financing sources, it’s wise to put together the following basic documentation to show a prospective lender:
- A well-formulated business plan.Your business plan can play a large role in helping you obtain financing. Make sure it contains a thorough study of the business you’re buying and a detailed pro forma that includes financial projections, cost analyses, and working capital estimates for one to three years.
- Personal financial information.Since you won’t have a business history for lenders to assess, you’ll need to supply details of your personal net worth and creditworthiness. Document your assets and debts, your credit history and score, and supply credit references as well.
- Your background and experience. Include your resume and in-depth information on any education and prior experience that is relevant to the franchise you’re buying so lenders can see that you’re qualified.
Financing Alternatives for Your New Franchise
There are several different funding options available to new franchisees:
- The Franchisor. Inquire whether your franchisor offers in-house financing programs for new franchisees or can recommend lenders who are familiar with the company’s history and business model. It may be easier to obtain funding from these outside lenders, especially if they’ve approved loans for other franchisees.
- Traditional lenders.Banks, credit unions, and other traditional lenders are a common source of new business funding. You can increase the likelihood of getting a loan approved if you approach a lender you’ve dealt with previously and if you have an unblemished credit history.
- SBA-guaranteed loans. The Small Business Administration doesn’t make loans directly. Instead, it guarantees different types of business loans through participating lenders. The 7(a) loan is the most common one used to fund a new franchise, and you can learn more and look for approved lenders through the SBA website.
- Personal sources. Depending on your personal financial situation, it may be worthwhile to tap into your 401(k), IRA, or other retirement fund rather than obtaining a loan. If you have a lot of equity in your home, you can also consider taking out a second mortgage or establishing a home equity line of credit that you can access on an as-needed basis.
Finding the right financing option for your new business isn’t difficult when you choose the right franchise, get prepared in advance and know the different options available. To find out more about opening a franchise with Experimac, visit our website today!