Buying into a franchise is one of the quickest and easiest
\nways to jump into the business world – especially for potential entrepreneurs
\nthat may not have the skills or creativity to develop their own business concept.<\/p>\n
Buying into a franchise can also give a new business owner a
\nhuge leg up on their non-franchise competitors as much of the initial struggles
\nof starting a business, like brand development, strategic planning and market
\nresearch, to name a few, usually takes years to complete and perfect – not to
\nmention an enormous amount of expense.
\nBut, when buying into a franchise system, these challenges have already been
\ncompleted by the franchisor.<\/p>\n
Further, franchisees realize a tremendous competitive cost advantage
\nvia bulk purchasing through their franchisor, marketing support (even locally)
\nand access to low cost equipment and construction resources.<\/p>\n
Nevertheless, franchisees still face many hurdles; one in
\nparticular – financing. <\/p>\n
These business owners are still at the mercy of the
\nfinancial industry when it comes to obtaining the financing needed to initially
\npurchase a franchise or for growth capital in an established franchised business.<\/p>\n
In any market, financing a small or new business is
\ndifficult. Add in a poor or sluggish
\neconomy and difficult can become impossible.<\/p>\n
While franchises have many benefits for entrepreneurs, banks
\nand other lenders tend to look at them as if they are any other business and
\nthus focus their underwriting on adequate cash flow, collateral and credit when
\napproving funding.<\/p>\n
However, and with increased activity over the last few
\nyears, the Small Business Administration (SBA) has developed a streamline
\nfinancing program that pre-screens franchise programs to speed up the application
\nprocess for SBA backed funding.<\/p>\n
Good news for franchises.<\/p>\n
SBA Financing The SBA, regardless of business type, has three main lending Do know that through any of the SBA’s loan programs, the SBA Thus, the SBA only guarantees these loans. The idea is to entice banks and other lenders Therefore, even though a business borrower may apply for and 7(a) Loan Program<\/strong><\/p>\n The SBA’s premier program is their 7(a) loan program. This program is designed to help business In most cases, the SBA will guarantee up to 90% of the loan Further, under the 7(a) program, the SBA offers specialty subprograms 504\/CDC Loan Program<\/strong><\/p>\n The SBA’s 504\/CDC loan program is a three party business 1) A loan secured from a private bank or lending institution 2) A loan secured from a Community Development Corporation 3) The reaming 10% provided by the business owner These loans can be use for almost everything that a 7(a) Pros and Cons of SBA Benefits of SBA Guaranteed Loans:<\/p>\n Benefits specifically for franchises: The SBA really likes The Downside Of SBA Loans:<\/p>\n As stated, the SBA keeps a list of pre-screened If you are thinking about buying into a franchise but are For more information about the SBA’s business loan programs,
\nPrograms<\/strong><\/p>\n
\nprograms – two of which we will focus on here.
\nThe third program is their Micro Lending Program which can provide up to
\n$35,000 for new businesses and up to $50,000 for established businesses.<\/p>\n
\ndoes not make direct loans to business owners.
\nTheir programs are designed to facilitate small business lending in the
\nmarket by leveraging existing lendable dollars.<\/p>\n
\nto take a little more risk in providing business loans to borderline borrowers – borrowers that may not fully meet the lender’s loan policies but that still
\nhave upside potential – like franchises.<\/p>\n
\nreceive what is called a "SBA loan"; these loans must still be underwritten and
\napproved by a qualifying bank or lender before being guaranteed by the SBA.<\/p>\n
\nowners either purchase a new business (either new outright or just new to the
\nborrower) or expand an existing business.
\nLoans can be used for purchasing or constructing buildings, purchasing
\nnew equipment and machinery or working capital for seasonal businesses or
\ninventory centric businesses.<\/p>\n
\namount – still requiring the borrower to provide at least 10% in equity (cash
\nor value).<\/p>\n
\ndesigned for businesses (including franchises) that export products, operate in
\nunderserved rural areas or for specially groups like veterans and military
\npersonnel.<\/p>\n
\nloan program that works as such:<\/p>\n
\nfor 50% of the project’s cost.<\/p>\n
\n(CDC) for 40% of the project’s cost.<\/p>\n
\n(borrower).<\/p>\n
\nloan can be used for with the major exception being working capital. The idea here is that the banks, CDCs and the
\nSBA want to further secure these loans with high value collateral like property
\nand equipment.<\/p>\n
\nLoans<\/strong><\/p>\n\n
\n main benefit is allowing business borrowers (even franchisees) to access
\n capital to start, buy or expand a business; capital that they might not be
\n able to get anywhere else.<\/li>\n
\n rates. Most standard or traditional
\n business loans are variable rate facilities. The reason is that banks and other
\n lenders want to ensure that should their costs of funds rise, they do not
\n get upside down in these loans.<\/li>\n
\n interest rates. The SBA caps the interest rates on the loans it
\n guarantees. It does not set the
\n actually rate as that is negotiable between the lender and the
\n borrower. But, the SBA does set the
\n maximum amount that a lender can charge.<\/li>\n
\n financing. Most SBA loans are
\n termed at 10 to 25 years. While interest
\n rates can play a major part in the affordability of a loan, longer terms
\n play a bigger roll in reducing the monthly payment amount many times
\n being the only issue that can keep a payment inline with the business’s cash
\n flow numbers.<\/li>\n<\/ul>\n
\nto back franchisees. The main reason is that these entrepreneurs are not in business
\nby themselves. They have a huge support
\nnetwork, a tried and true business model and ready made customers who already
\nknow and understand the brand. This is a
\nhome run in the business world and provides the SBA with some assurance that
\nthe franchise will be a success.<\/p>\n\n
\n underwritten by both a lender and the SBA.
\n And, since the SBA is part of the government, their portion can
\n take a substantial amount of time.<\/li>\n
\n loans can have higher initial fees (in additional to interest rates) as
\n the SBA also charges to underwrite the loan request and collects a fee to
\n replenish the guarantee fund.
\n However, most of the SBA’s fees can be financed into the loan.<\/li>\n
\n loans still have to be approved by a bank or qualified lender. And, if these lenders are not making business
\n loans, it doesn’t matter how much the SBA guarantees.<\/li>\n<\/ul>\n
\nfranchises. However, just because your
\nfranchise is not listed does not mean that the SBA will not back it. It only means that your application process
\nfor a SBA business loan may be extended; giving both the lender and the SBA
\ntime to qualify the franchise, its system and you, the borrower.<\/p>\n
\nworried about financing (in the beginning and as the business grows), take a
\nlittle time and see if a SBA guarantee loan program will work for you. You just never know what you might find and
\nfinally be able to realize all your business or franchise dreams.<\/p>\n
\nvisit the SBA’s website or talk
\nto your local bank (just remember that not all banks offer SBA loan programs,
\nso shop around).<\/p>\n","protected":false},"excerpt":{"rendered":"