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Sep
8
2020
OWNERSHIP

How to Find Funding to Buy a Franchise Business

How to Find Funding to Buy a Franchise Business

Learn how to improve your odds of securing financing and resources for funding to buy a franchise.

A little preparation goes a long way in expediting the process of securing funding and also shows lenders you are committed to opening your own business. Before meeting with potential lenders, create a resume of your personal background that details your education and work history. In addition, gather proof of residence, bank statements and credit card statements for at least the previous 12 months along with your tax returns for the prior three years. Have your collateral ready to show that you have a vested interest in the success of your business venture and take steps to improve your credit rating. Make sure your payment history is solid, pay down outstanding debt if possible and don’t apply for new credit.

Review the Franchise Disclosure Document (FDD) and create a comprehensive business plan. The plan should include an executive summary, a detailed description of the franchise itself, the products and services that will be sold and how it will benefit your specific area. Include a marketing and sales plan outline, financial projections and a comprehensive statement of the amount of money you want to borrow, and your best estimate on when it will be paid back. An appendix can be used to collect any additional information you feel is important to share with lenders to help describe the goals you have for the business.

Be an Ideal Borrower

When you apply for a loan, lenders assess your credit risk based on a number of factors. You can improve your chances of securing funding by familiarizing yourself with what lenders look for, commonly known in banking as the 5 Cs of Credit.

  1. Capacity – your ability to comfortably afford payments based on your debt-to-income ratio
  2. Capital – additional resources aside from your regular income like savings, investments or other assets that can be used to help repay the loan
  3. Collateral – something you own that will be pledged as security for repayment of the loan
  4. Conditions – how the money will be used such as to purchase property or equipment
  5. Credit history – your track record for making payments on time to other creditors

Financing Options

There are several funding sources available to help you get the capital you need to buy a franchise.

Franchisor Financing – Many franchisors offer funding to help franchisees get their business off the ground. Some finance the costs themselves while others have partnerships with lenders that offer an array of funding options for prospective franchisees.

International Franchise Association (IFA) – IFA provides tools, resources and programs to help connect potential franchisees with funding. It also provides information on initiatives specifically designed to help women, minorities and veterans with financing.

SBA Loan – The SBA reduces the risk to lenders by offering a partial guarantee against the loan. These loans offer a smaller down payment and longer repayment terms than conventional bank loans, making them a good option for new franchisees.

Commercial Loan – There are many types of traditional business loans including secured and unsecured loans, short and long-term loans and business lines of credit. Lenders typically require a minimum 20 percent down payment.

Home Equity Loan – If you’re a homeowner you may be able to leverage the equity in your home to secure a loan. This type of loan usually has a relatively low interest rate, but be cautious not to assume more risk than you can handle.

Retirement Plans – Retirement plans can be used to fund business investments, but it can be tricky to avoid tax penalties. If you go this route, be sure to work with a reputable investment professional to ensure the process is executed properly.

Selecting a Finance Offer

It’s just as important to do your homework on lending offers as it is studying the franchise opportunity itself. There are several things to keep in mind during the decision-making process.

Determine the total cost of the financing including interest and any fees charged to secure the loan. Review the amortization schedule and how your monthly payments or interest rates may change over time. Consider how the repayment plan works into your current and expected cash flow. Also, be clear on the terms and conditions of default in the event you are unable to repay the loan as anticipated.

It can take some time and legwork to iron out funding to buy a franchise so it’s a good idea to start investigating your options as soon as you’ve been approved by the franchisor. Consider what lenders evaluate and take steps to reduce your risk factors. Terms and conditions can vary widely so it’s important to investigate multiple options to find the best one for you.

 

Learn why a franchise business opportunity with The UPS Store is a worthwhile investment.

Entrepreneur's Franchise Top Rated for Veterans in 2020 badge

We Proudly Support Our Veterans

Participating partners with the VetFran program, The UPS Store offers qualifying veterans $10,000 off their franchise fee to start their new business. To learn more, contact The UPS Store Franchise Development Team.

Entrepreneur's Franchise 500 Ranked #3 in 2021 badge

Ranked for over 30 Consecutive Years

The UPS Store has been ranked #1 in the postal and business services category for over 30 years and remains in the top 5 overall for the fifth consecutive year according to the Franchise 500 list.

Kristin Howard

Franchisee, Michigan

The reason my husband and I decided to go into franchising and specifically with The UPS Store, is the different opportunities we're given with the business. The UPS Store has name recognition as well as opportunities to expand.

Debbie Adams

Franchisee, Kentucky

What I enjoy most about being a The UPS Store owner is working with my customers. We are the solution specialists for our customers.

Jim George

Franchisee, Illinios

My favorite part about The UPS Store network is the camaraderie with other franchisees. Everybody loves to help everybody else. You’re really part of a family.

Greg Murray

Franchisee, Florida

The interesting thing about The UPS Store is that when a customer walks through the door there's an extremely high probability that they're coming there to do something that is important to them. So at the end of the day, what we do for customers is very important and they are trusting that we are going to do it well.

See the Full Testimonial

Mariana Huberman

Franchisee, Washington, D.C.

One of the things that I love about The UPS Store franchise system is that you're not ever in this by yourself. The franchisees of The UPS Store network are great.

Heidi Morris

Franchisee, Colorado

The thing I enjoy most about being a The UPS Store franchisee is I get to get up, go to work and know that I'm helping other business owners succeed in what they're doing.

Bob Brown

Franchisee, Tennessee

Owning a The UPS Store franchise has changed my life because it's finally given me the opportunity to engage my customers and my staff and be able to take real pride in what I do. As a franchisee, we get faced with solving peoples' problems every day and we do everything we possibly can to try to help.

Marie Jensen

Franchisee, Oregon

My favorite thing about The UPS Store is the variety. I love the variety of customers, I love the variety of services; getting to know the customers, meeting their needs, finding out how we can help them accomplish what they need to accomplish and seeing how happy they are. That makes me ecstatic.

Tad Mollnhauer

Franchisee, Florida

With the products and services that The UPS Store provides we can make a difference in people's lives and that is the best reason for being a The UPS Store owner.

Joy Batchelor

Franchisee, Idaho

What makes being a The UPS Store franchisee worthwhile at the end of the day is the customers. The customers treat us like we're family.

Paul Erchinger

Franchisee, Texas

One nice benefit of owning a The UPS Store franchise for me has been that it gives me the opportunity to be more involved in the community. As I make relationships with others it seems like no matter what the environment is, in one way or another business comes out of that and that's not my objective—it's been a secondary benefit to being involved in the community.

Chris Reminder

Franchisee, Ohio

There are several things that I really enjoy about being a The UPS Store franchisee. First and foremost it allows me to get to know the people in the local community and that is a lot of fun. We get to see people on a regular basis. We get to know their life stories. That's a lot of fun.

Bruce Jones

Franchisee, Kentucky

Since we have joined The UPS Store, our life has changed by just having more time to spend together as a family. We've been very fortunate with the stores that we have and we have a great staff that looks out for our best interest and we look out for theirs.

Lonnie Williams

Franchisee, Oklahoma

What makes The UPS Store so successful is it gives each individual an opportunity to grow with the network and just meet the challenges that are brought to them on a daily basis. Every day gives us a new opportunity to help another person, to help another small business, to answer a question and to solve a problem.

Jeff Graham

Franchisee, Alabama

I love my customers. I love my employees. I love every person, every face that comes into my store. I enjoy every day going into work and I can't see doing anything else for the rest of my life.

Stacie Stigar

Franchisee, Alaska

I think that this franchise is so successful because of all of the resources that are available to us as center owners—we have marketing materials, we have so many different opportunities for help from the home office, and it just really makes for a great franchise.

Don Pollard

Franchisee, New Jersey

I think the thing that makes this franchise successful is a number of things. First of all we have an outstanding system, we have a great product, a great brand, and we're able to attract dynamic people to run these centers and run the business. So I think when you put all that together it really provides for a winning combination.

Mary Ellen Nichols

Franchisee, Tennessee

The thing I love about the franchise is that you have the UPS name backing you but yet you also have the autonomy to make your own decisions to promote.

Laura Griffin

Franchisee, Florida

In the eight short months I've owned my The UPS Store it has really changed my life. I've gone from being an employee of someone else to being an employer of my associates. It's a big responsibility but it's exciting every day.

Sandy Scandrett

Franchisee, Wisconsin

Being a The UPS Store franchisee has improved every aspect of my life. It's very rewarding financially, professionally, and emotionally. I have a large number of regular customers who are really, really appreciative of everything we do.

Kristie Robison

Franchisee, Alabama

I would say owning a The UPS Store location has changed my life to where I have more time and flexibility. In owning your own business you get your store up and running and you get employees that you can trust that are going to help keep your store running. This allows me to attend my two boys' ball games and also travel and do things with them so it has really changed my life for the better.