Franchise owners busy running businesses often struggle to locate funding options, but there are quick and simple alternatives that should be explored. 

By Mark Rockefeller

Alexandra Myers, a U.S. Navy veteran, distinctly remembers her first Smoothie King visit — she was 12 at the time and her uncle insisted on taking her. The franchise was not only a staple of New Orleans, her hometown, but soon became an integral part of her childhood. Six years later, when Myers attended the U. S. Naval Academy, she instinctively knew a smoothie shop would do well on military bases such as  her campus. An idea was born.  

Often, military personnel are isolated at work on bases and don’t have access to healthy food options. Myers saw a business opportunity and determined to run with it. After completing five years in the Navy, she combined her love for Smoothie King with her passion for putting easily-accessible, healthy options into the hands of military members. She founded Smoothie Sailing LLC in 2009 and took over three existing Smoothie King franchises.

As a young entrepreneur, Myers quickly learned that financing a franchise can be a challenge. She also discovered that banks aren’t lending the capital small businesses need to grow, especially for loans under $100,000. The number of commercial banks has significantly decreased in the past 40 years as big banks continue to consolidate. Community banks — those that are typically the biggest advocates for small-business lending — are dwindling, leaving small businesses and franchise owners, like Myers, with few financing options. So she decided to look for an alternative lending solution. 

Putting the Community Back into Lending

With the rise of the Internet and technology has come the rise of innovative solutions for nearly all of life’s needs; business funding is no exception. One of the greatest ways the lending industry is changing is by allowing and encouraging small businesses to share their stories with potential investors in hopes of bettering their chances of securing funding. We see this model succeed time and again with the advent of crowdfunding. But what if, rather than using a rewards-based system or forcing a business to give up equity in their company, this same model was applied to traditional loans?

Lenders that allow businesses to tell their stories via an online marketplace are opening up new channels for investors to assess a business opportunity they are considering lending to. Not only will they look at the credit worthiness and financials, but they get to see the heart and soul of the business. They get to see the impact the business has on its local community and its mission and vision for growth. Allowing business owners to tell their story is re-opening the tradition of when community banks lent to businesses because they knew the owner personally and could vouch for their character. 

When Myers discovered StreetShares, a peer-to-peer small-business lender, she found a way to experience how community banks used to work—by putting the community aspect back into it. On StreetShares, small-business owners have the opportunity to tell their stories to potential investors by creating a business pitch — complete with business plans, images, videos, or anything else they want to showcase about their business. Myers was able to share her business vision which led to investors competing to lend to her because they believed both in that vision and in the business.

Funding Sources for Franchises

With new types of financing sprouting up among online lenders, it is also important to understand what the options are, and how to interpret them. Given that banks have stopped lending the capital small businesses need to grow, here are a few options for you to consider when looking for funding:

SBA Loans

While the U.S. Small Business Administration is not new, it is a great place to start. The SBA is not only an advocate for small businesses in our national government, but it also works alongside local banks and lending institutions to provide financing programs for businesses looking to grow. The SBA has loan programs for businesses at all stages of growth, including general starting and expansion loans, microloans, loans for equipment or real estate, and others. The agency’s website, www.sba.gov, offers myriad resources for businesses to assist them in the process of finding funding.

Peer-to-Peer Term Loans

Peer-to-peer lending, also known as marketplace lending, is a way for individuals to lend money to their businesses without going through traditional channels, such as banks. Traditionally, investors — both retail and institutional — choose which businesses to lend to based on the credit score, perceived risk of the loan, and the financials of the business. As P2P lending has grown in the United States over the past 10 years, new contenders in the space have brought in innovative components that allow lenders to put the “peer” aspect back into P2P by allowing business owners to tell their stories directly to investors. One of the benefits of P2P term loans is that they are often unsecured, meaning the lending company won’t tie your assets up as collateral. 

Factoring (or Accounts Receivable Financing)

In factoring — or accounts receivable financing — a business sells its invoices to a third party commercial company which advances the business a percentage of the invoice. The third party company then collects the invoice for the business, gives the business a rebate, and keeps the remaining percentage. Accounts receivable financing can be a good option for businesses facing a cash crunch while waiting for customer payments. This option provides a quick boost to cash flow and can help with short-term financial needs. 

Merchant Cash Advances

Merchant cash advances offer a quick but very expensive way to get cash for your business. Even if your business has credit issues, getting approved can be fast and easy, with very little paperwork involved. Business owners pay back the cash advance by allowing the lender to take back a portion of their sales every day until the entire amount has been paid, along with a fee. While this can be a quick solution, you should be aware that the annual percentage rate of a cash advance is very expensive, anywhere from 50 percent to 300 percent. 

Your story

When Alexandra Myers chose her lender, she studied which options worked best for her and her growing business. She borrowed $30,000 to expand and cover operating costs for a new store location. Currently, she manages seven franchise locations on military bases throughout the United States. Her vision of providing healthy meal options to members of the armed services continues to advance.

What about you? 

Franchise owners like you are busy running a businesses, which can make it hard to dig into all the available funding options. But next time you think about financing your franchise, consider exploring some of the alternatives.   You’ll be surprised at how quick and simple it might be. 

How will your financing advance the story of your business? 

Mark Rockefeller is CEO and co-founder of marketplace lender StreetShares. Find him at fransocial.franchise.org.