Opening a franchise location requires more than just a keen entrepreneurial mind and a desire to succeed. It also requires a fair amount of cash to secure the launch, which can be a daunting prospect for many would-be franchisees. This goes double during especially problematic and turbulent economic periods, such as our modern-day runaway inflation and the almost-certain possibility of a looming recession.

All is not lost, however. There are ways to secure funding to open a restaurant franchise, even when things are tight. By following a few basic rules, you too can pursue your dream of becoming a franchisee, regardless of how light your pocketbook might be at this given moment.

 

TALK TO YOUR FRANCHISOR

With so many locations under respective belts, franchisors are tried-and-tested experts when it comes to securing financing. Chances are, they can (and will) assist with financing by leveraging their connections. The benefit of franchisor financing is that both parties have a vested interest in the success of the new franchise location. It’s a win/win scenario which ensures that both franchisor and franchisee are firmly committed to the deal, as opposed to a bank or secondary lender lacking skin in the game.

Be sure to talk to your franchisor to determine just how much you are eligible to receive. If nothing else, you may be able to finance the funds you were missing at the start – at least partially – in order to secure your necessary funding. As always, make sure your personal credit rating is up to par, as you may need to find secondary financing to gather your necessary capital.

 

PURSUE A GOVERNMENT GRANT

Many countries around the world offer government grants in order to help small businesses during the startup phase, but first-time franchise owners may also apply. The difficulty is determining the rules, regulations and expectations placed on entrepreneurs when it comes to securing a grant. For instance, the availability of Canadian government grants are usually determined by how far the benefits extend. In this case, the franchisee would need to hire staff in order to forge a capable and efficient team, which the Canadian government finds appealing.

When pursuing a government grant, be mindful not to fall into the trap of thinking that the money never needs to be paid back. Depending on your circumstances, you may or may not need to repay that money over time. However, since most franchisees would otherwise pursue financing through a lender, this isn’t necessarily a big deal.

 

CONSIDER A HELOC

A riskier option is to leverage a large portion of the value of your home in order to secure funding for your franchise via a Home Equity Loan or a HELOC (Home Equity Line of Credit). The former will require you to take into account your home’s value versus the amount of money left on your mortgage. You may have a house appraised at $1,000,000 dollars, but if you still owe $750,000 in mortgage payments, you will only be able to leverage the amount you’ve paid off. As you continue to pay down your mortgage, your equity will shift and build up over time.

The latter option is a HELOC, which is essentially a revolving line of credit that operates under the principle of short, controlled bursts. Just as before, equity is the main determining factor, but a HELOC differs in the fact that entrepreneurs can leverage that value any time they wish. The process begins by entering a draw period, which typically lasts for one year. During that time, approved candidates may withdraw funds against the equity in their home, until the time limit expires. When that happens, the repayment period kicks into effect. This ensures that the franchisee will need to pay back the amount they borrowed before being allowed to enter another draw period. Both options require a solid business plan, low debt-to-income ratio, and a solid credit score in order to attain.

 

WITHDRAW FUNDS FROM YOUR RRSP

This option isn’t recommended, but the decision lies solely with the potential franchisee. Withdrawing funds from an RRSP account means the amount will be taxed as income, which can put a dent into your actual funding. Further, it’s very hard to replenish the funds in an RRSP account once they are removed. The key factor here is determining whether the reward will outweigh the risk.

On the one hand, if the franchise location fails, your RRSP will take a major hit. On the other hand, you may receive the funding you need to create a mammothly successful franchise, grow your portfolio, and make far more money than you would have by contributing to your RRSPs over the course of a few decades. The upside, of course, is that a well-established franchise tends to attract heavy business. Plus, the franchisors have done their due diligence, perfected their branding image, and solidified their menu as a hit with customers. All the hard work has already been done; all you need to do is capitalize on it. 

 

PARTNERSHIPS

There’s no rule dictating that franchisees need to go solo. In fact, those short on funds can always enter a business partnership with a colleague or family member who can lay down the rest of the upfront costs. Once complete, you’ll be co-owners with your business partner, and work together to get your franchise location up and running. This is a solid option, especially for first-time franchisees who just want to get the proverbial snowball rolling down the hill. Later, the partners may wish to pursue their own ventures, or open up their own secondary locations, independent of one another.

Of course, co-owning a business requires a certain mindset. You won’t have sole discretion over how decisions are made, nor will you be able to operate the business any way you wish. However, if you and your partner are on the same page, share a similar mindset, and work well together, it really is one of the best options out there. It also allows for the opportunity to double your network contacts, and is seen by many patrons as a positive thing. 

 

CONCLUSION

Just because you may lack the cash of wealthier entrepreneurs does not mean that you are out of the game. With the options provided, you too can achieve massive financial success and a rewarding career, simply by taking one of several alternative paths. In the end, a lot of it will boil down to your own personal determination to win, and grow your franchise into a hit.

St. Louis Bar & Grill knows what it takes to thrive in the restaurant franchise world, and we continue to grow as a result. We just broke into the United States market for the first time, and our sights are set on even greater success. If you’re interested in sharing in that success, we want you to join our family of franchisees who have made St. Louis Bar & Grill such a hit with customers right across North America. Contact us today, and let’s see what it takes to get you started!