ss_blog_claim=bd50edc517cf0b7549fe6b5f63b6b5f8 The SLS Business Finance Blog: Franchises and Leasing

Tuesday, July 24, 2007

Franchises and Leasing

We are often asked which industries are best fits for leasing and there are lots of answers to this question. One of the best fits for equipment leasing for both the startup and the established business is the franchise business, both franchisor and franchisee.

The franchisee has purchased the franchise location in the particular area/territory. Every retail franchise has what is known as the 'required equipment list'. This would include things like certain kitchen items like ovens and icemakers for a full service restaurant or certain types of refrigerated cases for pastries for a coffee shop, or certain equipment types for typical repairs for a repair shop.

The required equipment list is a perfect fit for equipment leasing. The main reason for this is that good quality franchisors evaluate their potential franchisee rigorously especially in the areas of personal credit, personal net worth and liquidity. These are important factors for that rocky first 2 years so the business can keep going long enough to eventually generate a profit. The last thing the franchisor wants is to grant a territory and invest time and $$ in them and in 18 months they have to close up shop and start over again. So it stands to reason, since equipment leases are easier to qualify for than bank loans, that if the franchisee has good enough credit and liquidity to qualify for the franchise in the first place, then there's every reason to believe that qualifying for a lease for the required equipment should be easy. It helps to further ensure the franchisee's success by keeping more of his startup $$ in his pocket since 5-10% down is the maximum they'd have to pay up front so cash can be preserved for the unexpected. Its that unexpected cash need that usually kills a business in the first 2 years.

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