Franchising Today - Fall 2016 - 15

FINANCING

ing how comfortably you can afford
the monthly payments. Leave yourself some room to breathe.
Alignment with capital outlay plans.
The capital needs of franchisees are
fairly predictable and it's essential to
plan for the varied expenses expected.
For example, most franchise systems
require franchisees to remodel their
stores every seven to 10 years. You
will want to ensure that remodeling
financing terms don't exceed the expected remodeling cycle, which could
result in paying for one remodeling
while completing another.
Financing tailored to the business and
the brand. Franchising finance is a bit
different from other forms of commercial finance. It can be very challenging to get a lender comfortable
with franchise projects, which can
be heavy on soft costs and light on
collateral. Strongly consider working with a lender who is familiar with
your brand and comfortable covering
the full range of costs associated with
opening, remodeling or otherwise financing the franchise enterprise.
A good franchise lender will lever-

Work with a lender who is familiar with
your brand and comfortable covering the
full range of franchise costs.

age its experience assessing the market value of your enterprise, your
performance relative to the average
unit economics of your peers and the
overall health of your franchise system, rather than simply reviewing
personal credit scores and the value
of the hard collateral when assessing
the true risk of financing your project. A financing provider with this
knowledge and experience can be an
invaluable partner in safely growing a
healthy franchise business.
Cost of financing. When considering
the rate a lender quotes for a franchise
project, it is important to discern between what sounds like a great rate
and what is actually a good deal economically. Variables such as fees and
upfront payments factor into the true
cost of financing. A good way to compare loan offers is to do some quick,
"back-of-the-envelope" arithmetic:
1. Add up all nonrefundable upfront
fees and any lease/loan termination fees.
2. Add up all advance payments.
3. Add up all of the remaining lease/
loan payments.

4. For equipment leases with purchase options, determine the
residual payment expected to be
owed to transfer ownership to
you from the lessor at lease end.
5. Add up steps 1 through 4 to determine the amount you will pay
over the life of the lease/loan.
6. Add up all amounts paid from
lease/loan proceeds to equipment vendors, contractors, other
third parties and yourself in connection with the lease/loan.
7. Subtract the amount you calculated in step 6 from the amount
from step 5 to determine your total cost of financing.
Ease of use. When seeking financing,
the concerns of most franchisees center on rates, terms and types of loans
offered, but the manner in which you
get your financing is also critical. The
financing process should be a seamless one that allows you to focus on
running your business.
The provider you select should have
a record for speedy approvals, ease of
process and quality customer service
to ensure that your financing goes as
smoothly as possible.
This checklist of issues to consider
is key to you being able to successfully navigating the franchise financing
decision-making process. Finding a
full-service franchise financing company that can help you address these
issues and answer your questions will
help ensure that you get the right financing at the best possible terms for
your business.
Richard Henderson is vice president,
sales, franchise finance group, Marlin
Business Services Corp. He has extensive
equipment finance industry experience and
is a frequent contributing author to equipment finance
publications. He can be reached at rhenderson@
marlinfinance.com. For more information, visit http://
marlinbank.com/franchise-financing.html.
FALL 2016

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Table of Contents for the Digital Edition of Franchising Today - Fall 2016

Contents
Franchising Today - Fall 2016 - Cover1
Franchising Today - Fall 2016 - Cover2
Franchising Today - Fall 2016 - 1
Franchising Today - Fall 2016 - Contents
Franchising Today - Fall 2016 - 3
Franchising Today - Fall 2016 - 4
Franchising Today - Fall 2016 - 5
Franchising Today - Fall 2016 - 6
Franchising Today - Fall 2016 - 7
Franchising Today - Fall 2016 - 8
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Franchising Today - Fall 2016 - 38
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Franchising Today - Fall 2016 - Cover3
Franchising Today - Fall 2016 - Cover4
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