Understanding Franchise Financing
November 18, 2021
Opening your own restaurant franchise can be equally parts daunting and exciting. One of the most daunting parts is certainly coming up with the cash to finance your new business.
Before you start looking at your own financial situation, you’ll want to investigate the franchisor and make sure they are being transparent with their startup and business loan costs. For instance, if a franchise fee seems really cheap, you may end up paying far more later on, and that can skew how you make your financial plan.
Once you know exactly how much you’ll be expected to pay in upfront costs, you can look into some financing options. You will need a Franchise Disclosure document to present to potential business lenders; this document includes the franchisor’s business model so the lender can see it is viable. Now it’s time to research the lender. Don’t be suckered in by promises of “quick franchise financing!”—always ask the lender for a definite timetable for when you’ll be able to close. Try to choose a lender that has a lot of experience financing franchises, and if it is your first one, maybe ask if they are familiar with first-time franchise loan situations. You may get some extra leeway or insight there.
As far as the actual costs go, it’s best to overestimate the total amount of funds you’ll need. Even if you’re 100% clear on what costs the franchisor expects you to cover, there will likely be unexpected expenses, especially during the runup to opening. Overestimate your total amount, but not to the point where you’re asking for far more money than you’ll be approved for. This will take some running and rerunning of the numbers on your potential franchise business, but the extra preparation is worth it. A good basic rule is to have at least six months of operating costs covered at the outset of your venture.
If you have any questions about what it takes to open a franchise restaurant, give Rosati’s a call today. With a reputation for quality Italian food and more than 200 locations nationwide, we are always looking to expand our family!