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Where can I get the money to start my franchise business?
I just finished my MBA and want to start my own company. I'm currently doing an internship in Munich, Germany, where I saw a restaurant I fell in love with. I want to buy a franchise and take it to Guatemala, where I come from. I need at least $600,000 to start. Would angels or private equity companies invest in a franchise business? What other options are there?
Asked by Leonelmo
Posted: Tuesday, August 05, 2008 | Found in Franchises
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There are three basic strategies that can be used to finance a franchise business startup. The first is to use your own money, accumulated over your lifetime, as the investment capital you need. The second is to use assets you've acquired over your life as collateral in order to borrow the money you need from a lender that makes business startup loans. These are by far the two easiest strategies to employ, but I'm guessing from the tone of your question that neither of these strategies is going to work for you.
If you don't have the money you need or the assets to enable you to secure a loan, then you'll need an angel. In my experience, private equity firms invest in existing companies with an established track record, so that approach is probably not going to work. What you need to do is find a person (typically a relative or known business associate rather than a stranger) who is willing to take a risk on you because of the confidence he or she has in your ability.
While that's not easy to do, it is possible. As a final note, expect to pay a substantially higher amount for capital you access in this manner, since angels usually require a significant equity stake as well as interest in exchange for advancing money into a startup.
Good luck!
Jeff Elgin has almost 20 years of experience franchising, both as a franchisee and a senior franchise company executive. He's currently the CEO of FranChoice Inc., a company that provides free consulting to consumers looking for a franchise that best meets their needs.
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