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The word “recession-resistant” is all the trend, with infinite recommendations on pivoting your savings, profession and even leadership skills. This puts me in a difficult spot since those that select and manage franchises correctly reap recession-resistant advantages. Look no further than our friends at Teriyaki Madness, who rocketed themselves from a latest kid on the block to twenty% systemwide growth throughout the Great Recession in 2008 while other franchises enjoyed similar recession booms. The COVID mini-recession brought more of the identical, as Teriyaki Madness saw 18% same shop growth in 2020.
It is smart, though. Recession or not, people will still exit to eat, get haircuts and buy gas. That is why I do not envision this growth ending anytime soon, if ever. With numbers like these, it’s no wonder franchisees wish to pursue the final word dream: a sprawling portfolio, beautifully expanded and diversified. The one hurdle? You’ve to finance it.
An neglected opportunity with one-of-a-kind upsides
There are many franchise financing options, and while different routes could be right in numerous situations, there’s one you likely have not considered: crowdfunding. I all the time say franchising is probably the most neglected industry that exists. Well, crowdfunding is probably the most neglected opportunity to expand your empire.
Like personal crowdfunding, franchise crowdfunding involves numerous people investing small amounts of cash without collecting any repayments or interest fees. But there is a twist: as an alternative of simply donating money, these crowdfunders receive equity.
These crowdfunders are typically raving fans of your existing franchise. They live close by, they’re regular customers, and now they turn into a part of the business. Whether you are attempting to open Franchise #2 or Franchise #20, they’ll be there, not only offering money but cheering you on and inspiring the remaining of the community to support you too.
The result? Financing and invaluable marketing at the identical time. Those are two of the unique advantages of crowdfunding — you may see interest-free investments pile up immediately, and all of that evangelism can assist generate a healthier bottom line well into the long run.
Within the three years I have been on the front lines of franchise crowdfunding, I’ve seen this excitement firsthand. Even a $500 or $1,000 investment emotionally invests them within the business’ success. No other investor reacts this manner. To them, you are just one other line item on their portfolio.
Related: 12 Key Strategies to a Successful Crowdfunding Campaign
Why crowdfunding is the king of franchise funding
Crowdfunding is one in all the least-talked-about franchise financing options – largely because there have not been platforms to accommodate it. As that changes, let’s evaluate it against the standard suspects:
1. A bank loan — The bank is probably going where you received financing to your first franchise, and plenty of franchisees do not understand that it may work against you. Odds are you are still paying off that loan, and banks don’t love that — irrespective of how successful your franchise is. Financing for Franchise #2 could be harder since the bank assumes Franchise #1’s success is a fluke.
Getting a bank loan isn’t easy — especially now, with an emerging credit crunch and spiking rates of interest — but what they consider a red flag translates into loads of extra red tape. I all the time warn franchisees that the bank simply views them as a row on a spreadsheet. With crowdfunding, you do not get bogged down in red tape or need personal collateral.
Related: 10 Inquiries to Ask Before Applying for a Bank Loan
2. An SBA loan — Having a loan guaranteed by the SBA is a preferred franchise funding tool since the guarantee increases your odds of approval, and these loans include higher repayment terms and rates of interest than traditional bank loans. “Higher” doesn’t suggest “good,” though. The SBA 7(a) loan, franchisees’ hottest selection, currently has rates as high as 16%.
Plus, SBA loans require personal collateral because your existing franchise’s success doesn’t count. Making things more frustrating, chances are you’ll not get approved for a level of funding that meets your needs — a threat that looms even larger during a credit crunch.
Crowdfunding gives you the ability to ask for as much funding as you wish. Unlike an unknown startup, franchises include predictability in returns based on the previous success of other locations and a built-in brand identity, which supplies you ready-made fans who’re excited to speculate — making it easier to hit your goal.
3. Rollover as a business startup (ROBS) — Some franchisees use their retirement funds as a down payment on an SBA-backed loan. On the surface, it’s tempting. The capital is sitting in your 401(k), begging for use, and with a ROBS, you may tap into it without the taxes that include regular withdrawals. Why would not you utilize your financial future to fund your financial present?
Since it comes with the danger that falls into the keep-you-awake-at-night category, with crowdfunding, you get capital without risking your nest egg.
4. Online business loans — Many online lenders are geared toward small businesses, armed with more flexible requirements and faster approvals than their traditional counterparts. That flexibility and speed come at a price in the shape of upper rates of interest and shorter repayment terms. That whooshing noise you hear as money flies out the window doesn’t exist in a crowdfunded world.
5. Private equity funding — A franchise’s established brand and proven business model could make it more appealing to non-public equity firms, which is usually a path to rapid expansion. Nonetheless, private equity firms typically have a minimum investment threshold of $30 million, meaning the overwhelming majority of franchisees never land on their radar.
I like to think about crowdfunding as a more realistic option to non-public equity — virtually any franchisee can quit a small stake within the business in exchange for interest-free money that funds their expansion dreams.
6. Franchisor discounts — While some franchisors offer discounts on franchise fees, they do not provide loans for what’s needed to speculate. As an alternative, they refer you to a partner lender, which comes with the identical requirements and red tape as another bank.
Now’s the time to collect your crowd and expand
Diversification increases opportunities and reduces risk, and past recessions tell us the demand for franchise goods and services is undying — making now the right time to double down. You haven’t got to be wealthy, succumb to ever-growing rates of interest, run the danger of your bank collapsing or use your home as collateral. All you’ve gotten to do is locate the fitting crowd.
