updated - October 1, 2020 Thursday EDT
In today's economy, obtaining funding from any lender has become a more complicated task. You will feel the toughness of the lending environment when trying to borrow some money to buy a franchise or boost your existing franchise.
Nonetheless, this does not mean that there is no chance of getting the funding you need. Even though the bank has the final decision, you can still get it when you have the right tips.
If you are looking for funding to purchase a franchise or improve your existing one, Finimpact has the best franchise financing list of loans from trusted lenders.
Here are 3 essential tips to increase your chances of obtaining franchise funding:
1. Construct a Comprehensive Business Plan
If you don't have a business plan outlining how you want to run your business, be sure that no lender will give you a loan.
A business plan is vital for anyone planning to dive into the commercial waters. It helps you to prove to your lender that you are worthy of the investment.
The plan should have critical details such as the business's background, business strategic goals and vision, and detailed financial projections to help the business achieve its goals.
Keep in mind that whether you are buying a franchise or improving an existing business, the bank will ask you how much money you need and how you plan to spend it.
Your business plan will help you explain to the bank how you will invest the money they will lend you and demonstrate your worthiness of this investment.
If the plan is clear and comprehensive, your lender will have enough evidence and collateral to ensure that the investment will not be wasted.
2. Invest Some of Your Savings into the Business
If you are willing to invest your own money into the business, it will be easy for an outsider (lender) to trust you and finance it. After all, they won't risk funding your business if you cannot contribute anything.
In most cases, lenders will want to see how committed you are to the franchise. When you invest some of your savings, they will definitely understand the commitment and know that you can handle finances responsibly.
So, don't give the lender a loophole to think that you are not right to invest their money. You deserve it!
You may decide to raise about 20 to 30 percent of the required capital and let the bank fund the remaining percentage. But of course, the amount you will finally get depends on certain circumstances, including what the lender can see in your business.
3. Be Realistic with Your Financial Projections
The returns you expect from your business is crucial when making any investment decision.
Your lender will want to be sure that you can repay the money without much struggle to ensure that it does not collapse.
The best thing to do is prepare a strategy whereby you will grow your business in stages, and be very realistic about the returns you can get in maybe a year or half a year. If your financial projections sound unreal, the bank will not take it seriously.
If you need the funding to boost an existing franchise, do not underestimate the revenue you generate. Lenders want to see that the current cash flow is genuine before funding the business.
Hiding profits is an illegal and a poor business practice, and you will finally get caught. Your character also matters a lot while building trust with your potential lender.
It will help if you are upfront and precise with the lender about why you need a loan and your business's current situation.
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