SBA-backed loans gaining popularity

Posted on August 23, 2010 by Franchise Gator Admin

With many franchisees having difficulty getting funding in recent years, more than a few have turned to the federal government for help.

Thanks to loans from the U.S. Small Business Administration, people interested in opening up their own establishments have gotten a brand new way to help finance their dreams after being turned away by banks. One Philadelphia-based pretzel franchisee has seen the market tighten and those looking for traditional loans being forced to pay more up front for collateral than ever before.

"Two years ago it was a lot easier," said Marty Ferrill, vice president of operations for the soft pretzel franchise, in an interview with the Philadelphia Business Journal. "You basically needed 20 percent equity of your own into the loan. Now banks are pushing for 30 or 40 percent."

Despite the fact that the SBA is willing to take on more loans, the default rate, which is at about 6 percent, is not that much different from conventional business loan rates, the news source reported.

It has become more common in recent years for entrepreneurs to become involved in government-sponsored loans. By hooking up with a franchise that has a relationship with the SBA, franchisees can find it easier to obtain funding.