Advice You - Business

Whether you write a personal check, use the equity in your home, use your 401K money or get a commercial loan, one way or the other, you're financing your franchise. Financing it the right way is critical to your long term success. It might not be as critical as finding the right locations, but it’s close.

Generally speak

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

ing, in financing your franchise business, you have three basic options:

Option I: Finance it out of your own pocket, either by writing a check from savings, cashing out retirement assets, or some other means,
Option II: Take out a loan secured by your personal assets, suc

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

as an equity loan or an SBA loan, or

Option III: Take out a commercial business loan for franchise financing.

Each option has its pros and cons. The best option for you will be based on several different factors, including the goals you have for your new business. One option might be best

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

if your goal is to open a single location, another if your goal is to open several in a given time frame. What follows is a discussion of the various options and how one might or might not be the best one for you. It is our goal to help you make the best decision possible, based on your current situation and on your goals

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

Options for Franchise Financing Option I: Finance it out of your own pocket If your objective is to open only one location and you have the liquid cash to open it and get it to profitability, this is not a bad choice. You will lose the interest earned on y

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

our money, but avoid the interest cost of borrowing. If you plan to open more than one location and have the resources to get them all to profitability, again, this may not be a bad choice.

However, if you have the resources to open the first location, and plan to rely on using cash flow from the first one

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

to open the second, third, etc, be careful. Remember, if you have cash in the bank or equity in your personal assets, you can always use that for working capital or expansions later. If you plan to rely on commercial financing at any time, financing the first one is what gives you the greatest flexibility.

That's the down

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

side of this option. Having your personal money tied up in a business limits your flexibility in the future. You may or may not be able to take advantage of a future opportunity when it comes along. Many books are available that discuss the value of using OPM (Other People's Money) in opening and growing a successful busin

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

ss.

Option II: Take out a loan secured by your personal assets This Option provides greater flexibility than Option I. Your liquid assets remain liquid giving you the ability to respond as needed to changing business requirements. The net, after tax difference between interest earned and interest paid can

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

be low making this a viable alternative to Option I.

The downside of this Option comes in two forms: (1) tying up the personal assets you pledge as security, and (2) the true, all-in cost of the financing.

Tying up your personal assets limits your choice and flexibility in the future. As an example, we recently funded a

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

2nd location for a certain franchisee. He had taken out an SBA loan for his first location using his home a security. He knew the lender was also filing a lien against his first location but no one thought this would be a problem since we planned to secure our loan with only his new location.

What we discovered during the

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

title search was that when the original lender filed their lien against the franchisee's business, they listed the location they were financing and included the phrase "all future locations" in the lien filing. Those three little words meant that any and all locations this franchisee would open at any time in the fu

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

ture were going to be considered security against his original loan! We were eventually able to resolve this but needed to negotiate a subordination agreement with the original lender.

The lesson here is to be very careful about what the lender actually uses as security on the loan because it may limit your options in the

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

future.

In terms of the true, all-in cost of the financing, this can be a complex subject. Unfortunately, some lenders like it that way. They will quote a low interest rate but not the points and loan fees involved. They won't take the time to educate a borrower on the differences between variable rate financing and fixed

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

rate financing. They won't fully disclose all the charges that are incurred during the life of the loan.

The lesson here is to get everything in writing and review it with a trusted advisor. Most reputable lenders will issue a proposal or term sheet that includes detailed information about payments, fees, terms, security

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

etc.

Option III: Take out a commercial business loan for franchise financing. This option tends to offer the greatest flexibility to most franchisees. Franchise loans are typically secured only with the assets of the franchise, leaving all personal assets unencumbered. Pay close attention to what
ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust
> franchise assets are being used as security (See the story under option II).

In terms of the true, all-in cost of this type of financing, as we mentioned under Option II, this can be a complex subject. All of the items mentioned in connection with Option II apply here with option III. Get proposals in writing, review th
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
se proposals with a trusted advisor, and make a fully informed decision.

About InSource Capital Services, Inc. We specialize in franchise financing. As proud members of our local Better Business Bureau and the NAELB, we promote and subscribe to a Business Code of Ethics. We are committed to "raising the b
.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
ar" when it comes to fair and honest business dealings with all of our clients and business partners.

Features of our Franchise Financing programs include:

Fixed rate loans to 84 months
No outside collateral, other than the assets of the franchise and your good credit
Pre-Funding, we can pay your
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip
endors directly
Credit approvals in as little as 5 working days.
Our commitments to all members of the franchise community include:
Fast Turnaround Times
Clear Answers to your Questions
Competitive Rates
Honesty & Integrity
Finding a Way to get the job done!

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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Advice You - How to Finance a Franchise

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