Some franchising companies will provide loans to help people buy a franchise or equipment.
To become a business owner, Dave Potocki bought Spencer’s Chem-Dry, a Glendale, Arizona, carpet and upholstery cleaning franchise in 2008.
Harris Research of West Logan, Utah, which has been franchising Chem-Dry since 1978, is one of dozens of franchising companies that provide financing for buyers of their franchises. Chem-Dry offers several different programs, depending on the purchase, says Franchise Administrator De Ann Corbell. In one common offering, Chem-Dry will carry back $13,000 of the $19,950 total investment at 5 percent simple interest to be paid back over five years. The company also gives franchisees a $500 rebate when they complete the mandatory five days of technical and managerial training before the franchise opens. Loan payments don’t start for a few months, which helps the franchisee get started and earn some income first.
The idea to offer franchisee financing comes from founder Robert Harris, who worked his way through law school as a carpet cleaner. “The Chem-Dry system has made a new way of life and a new beginning for thousands of people,” he says on the company Web site. The financing is obviously a good selling point. Chem-Dry has 2,500 franchisees throughout the United States and most take advantage of the program, De Ann says. Financing is not offered to overseas franchises. Instead, Chem-Dry sells territories to master franchisees, which in turn sell individual franchises under the master’s own terms and conditions.
However, Dave couldn’t use Chem-Dry’s financing program in 2008. He was buying an existing franchise, and Chem-Dry only helps finance new franchises. But he did take advantage of the financing help when he bought a second franchise, Classic Chem-Dry in Buckeye, Arizona.
“The financing helps get started,” Dave says.
Franchisors have a vested interest in providing financial help to potential franchise buyers. It can provide a competitive advantage. However, not every franchisor offers financial help to buy a franchise or required equipment. You should investigate before planning your future based on the hope that the particular franchise you want to buy comes with financing help. Furthermore, some franchisors that do offer loans may not provide interest rates or terms that are advantageous to the buyer. Do your research to find out if other loans with better rates are available from independent lenders.
Most, including Chem-Dry, do not finance the entire cost of starting the franchise. They set a minimum down payment price because they want their franchisees to have a personal investment in the business. A franchisee with no financial stake in the business has less reason to work hard to build success and more reason to walk away when the going gets tough.
Dave, with a background in marketing, says ownership, whether of a franchise or independent business, requires significant commitment and hard work. He has two employees, but still works 40 to 70 hours a week.
“I do a lot of the work myself, but I don’t have stress, and I don’t have to wear a suit and tie to work,” Dave says.
Brandon is a finance consultant and part time blogger who has written this article for Mr. Tabber Benedict a M&A attorney and businessman with substantial securities.