FBR Issue 2 - 2019

FBR SPECIAL REPORT
Scalability—Low-cost franchise owners typically
don’t incur the large loan debt that is
common with higher cost investments, allowing
owners to scale much more rapidly. “The
low start-up cost gives our franchisees scalability
and flexibility, which is very attractive for
someone researching business opportunities,”
said Lou Shager, president of Mosquito Joe.
Recession Resistant—Many low cost franchise
opportunities don’t require expensive
overhead or a large staff, which means they
have a better chance of surviving an economic
downturn.
More Location Choices—The majority of
low-cost franchises are service-based businesses
that can be run out of a home office or
mobile unit. Others, such as Cruise Planners
and Dream Vacations can be run from anywhere
in the world, so long as there is an
internet connection!
Financing Options for Low-Cost Franchises
Flexible Hours—With no brick and mortar
location to attend to, most low-cost franchise
opportunities offer owners the ability to make
their own schedule. “A home-based business
allows our franchisees to have a great amount
of autonomy,” said Shager. “The flexibility of
running a business from home allows families
to excel at their business without sacrificing
time for their other responsibilities. They’re
able to get the kids to and from school while
successfully handling scheduling, routing and
customer calls.”
WHAT TO EXPECT WHEN YOU BUY
A LOW-COST FRANCHISE
Like any new business, there are one-time and
recurring costs you’ll need to cover as you
start and grow your business. With a franchise
purchase, there are four primary cost considerations
you’ll need to understand before you
get started:
If you don’t have the savings to pay for a low-cost franchise out of pocket, financing options can
help. There are several options you’ll want to consider:
Low-Doc SBA Business Loans
An alternative for those searching for smaller amounts of capital, these loans offer you the same
benefits as SBA Loans (guaranteed by the Small Business Administration (SBA) and lent by banks)
with a shorter turn-time.
401 (K) Business Financing
You can use up to 100 percent of funds from an existing retirement account to buy or start a
small business or franchise without taking a taxable distribution or getting a loan.
Unsecured Loans
You don’t need collateral to qualify for these loans, which can happen in just three weeks. They
are a great option if you need a fast funding solution. If you have a high credit score, banks and
credit unions are good sources for unsecured loans. If your credit score is lower than the required
range for banks and credit unions, consider a third party lender.
Portfolio Loans
Security-backed loans allow you to take a loan using a financial portfolio, such as a mutual fund,
as collateral. There are several potential advantages to doing so. First, you can leave your portfolio
in place, which enables it to grow. Second, because the loan is backed by your portfolio’s value,
the interest charged will be lower than for an unsecured loan. It is important to note that the
risk of borrowing against the value of your securities is that if your investments fall in value, the
money borrowed will emphasize your losses.
Family and Friends
For low-cost franchise loans you may be able to turn to family and friends for assistance in getting
started.
To help keep your startup costs low, talk to franchise companies about potential discounts or
financing options they may provide. Some companies will let you finance a portion of the initial
franchise fees over time and many offer special incentives to military veterans and other special
groups such as first responders.
To learn more about these and other franchise financing options, visit our website at
www.FranchiseBusinessReview.com/financing to explore and apply for quick approval.
Franchise Fee—The franchise fee typically
covers the costs to get started such as training,
your new website, initial supervision, etc. This
fee may be paid in one lump sum or in installments
over time.
Initial Investment—The initial investment
covers the materials and resources you’ll need
to launch your business.
Net Worth—Simply put, your net worth is a
total sum of all your assets, less all your debts.
Things like real estate and retirement savings
count toward your net worth even though they
aren’t “liquid assets,” while credit card debt,
mortgages, and other liabilities count against
your net worth. Many franchise companies
have a minimum net worth requirement
for their franchisee candidates because this
determines your “fundability” (whether or not
a bank will give you a loan). That said, with
many low-cost franchise opportunities, their
net worth requirements are also low, as the
total investment needed to start the business
typically doesn’t require a large bank loan.
With any franchise, you’ll also be required
to pay ongoing fees such as:
Royalties—Royalties are ongoing fees and are
typically charged as a percentage of your gross
revenue.
Advertising and Marketing Fees—In exchange
for the marketing and advertising support
you’ll receive from the franchisor, you’ll be
required to pay a monthly marketing and
advertising fee, which is usually a percentage
of your revenue.
You can find more detailed information
about all of the above mentioned costs and fees
in the franchise brand’s Franchise Disclosure
Document (FDD). Once you contact a franchise
company and meet their qualifications,
they will provide you with their FDD and
Franchise Agreement for review.
These initial costs can create a barrier to
entry for some prospective franchise owners.
Fortunately, low-cost opportunities typically
have low start-up costs and fees that make
ownership much more realistic.
8 | For more information on the companies in this report, visit www.FranchiseBusinessReview.com