Franchising: The money side - Military Careers, Second Careers - Navy Times

Franchising: The money side

Leaving the military means leaving a life of following orders — which may be why franchising appeals to some veterans looking for second careers.

In franchising, the business owner calls the shots. At the same time, it’s not a solo flight. Franchisees start out with built-in support systems, a proven record of success, a business plan that works, marketing assistance and an established brand.

Still, all those perks don’t come free. Franchising, like any business, begins with an investment.

The question is — where do you get the money?

Getting started

It’s a good idea to check out Entrepreneur.com for a look at franchises by name — each entry includes the startup costs, which vary widely. Some require hundreds of thousands of dollars in franchise fees.

It can cost as much as $1 million to get into McDonald’s and $260,000 for a UPS Store. That includes the fee, inventory purchases, employees’ wages and the cost of leasing or buying buildings and equipment.

What you’ll have to pay

Even if a lending institution agrees to help you finance your business, it won’t pay for all of it.

If approved for financing, you’ll probably get about 80 percent of what you’ll need from the bank. And banks generally offer more to franchises than other startup businesses because the franchise has a track record.

Financing options

Service members should look for military-friendly franchises. Some franchises offer military discounts, and all franchises participating in the International Franchise Association’s VetFran program offer veterans a discount off the franchise fee.

“We give a $15,000 grant that can be taken off the franchise fee to reduce it, or set aside to cover startup costs,” said Tom Hofer, a former Navy lieutenant and chief executive officer of Spring Green Lawn Care, a lawn and tree service franchise that operates in 24 states.

Even with discounts and partial financing through the franchise, which some offer in certain cases, most new franchisees have to get a loan. Options include going to the bank where you do business or looking for lending institutions with special programs to assist veterans who are business owners.

“A lot of institutions like mine will package a franchise loan for about $1,000, but we waive that $1,000 for veterans,” said Bernie Siegel, president of Siegel Capital.

Assets

What are you worth? It’s important for prospective owners to understand more than the dollar amount on a bank statement. Assets mean everything from savings accounts and IRAs to home equity, retirement income and other possible resources. But don’t give up if your assets appear lower than you’d hoped.

“Loans and financing for franchises are not solely based on assets,” Siegel said. “Bank loans won’t be denied just because of assets. Much more goes into the bank’s decision.”

Credit

If you have a good credit history, banks and lenders are far more likely to finance you. But there’s another factor that’s just as important, Siegel said — the franchise you’re getting into.

Banks are more likely to finance a franchise when that franchise has a good record with the Small Business Administration, which guarantees the bank 75 percent of the loan.

“If the SBA has helped finance franchises that have succeeded, that’s a good reason for them to finance another one,” Siegel said. “Lenders tend to finance those kinds of franchises even if the borrower doesn’t have a lot of assets.”

On the Web

These Web sites provide franchising insight:

• http://www.franchiseregistry.com

Franchise companies listed here have been cleared for expedited loan processing with the Small Business Administration. A company’s inclusion in the registry doesn’t count as an SBA endorsement — it won’t tell you whether the business you’re interested in is a good one. “It does mean that the company has paid to have all of its paperwork reviewed and that the company has met all the rules and regulations of the SBA,” said Bernie Siegel, president of Siegel Capital. “It’s a lot of work for them, but it shows the SBA that there are no violations. If the franchise you’re interested in isn’t on the registry, some lenders won’t finance you.”

• http://www.franchisegator.com

This site includes information on franchise business for sale and searches franchise opportunities by industry, investment level and geographic preference.

• http://www.franchise.org

The International Franchise Association maintains a database of its members and includes estimated startup costs and total investment. Look under “Find Your Franchise Here” and choose “Opportunities for Veterans” to browse members of IFA’s VetFran program, which offer initial discounts to veterans.