7 Steps To Financing A Franchise Business

the steps

Obtaining financing for your franchise business shouldn’t be that tough…especially if you know what to do. Having business experts available can help, too.

A sizable amount of franchise business loans are Small Business Administration (SBA) loans. The Small Business Administration guarantees SBA-approved lenders a certain percentage of the loan amount if the person applying for the loan meets certain criteria…the SBA is not the lender.

Here are what lenders are looking for to approve a loan these days, courtesy of the SBA:

A. The loan must be for a sound business purpose. For SBA-guaranteed loans, the business must be eligible based on size, use of loan proceeds and the nature of the business (no lending, speculating, passive investment, pyramid sales, gambling, etc.)

B. You and your partner(s) are of good character, have experience and good personal and/or business credit history.

C. Ability to pay back the loan- reasonable to strong collateral (personal and business assets) is very important. If you’re going to obtain an SBA Loan, the SBA expects the loan to be fully secured-but they will not decline a request to guaranty a loan if the only unfavorable factor is insufficient collateral. And of course, owners must have personal equity investment in the business/skin in the game.


7 Steps To Financing A Franchise

1. Have a real business plan. Use this business plan software, and/or enlist the help of a small business accountant or other financial expert. Local Small Business Development Centers are another great source.

2. Approach your personal bank first. You have a built-in relationship with them- financially. Ask them if they are an SBA Preferred Lender. Find out if they’re eager they are to earn your business.

3. Fill in all applications thoroughly. Don’t rush through the paperwork. Fill in the details. If you’re not detailed enough in your paperwork, the lender may not feel you’re able to handle the details needed to run a business.

4. Be realistic in your expectations concerning income projections. It’s much better to be conservative in your projections. If you end up doing better, fantastic. If you’re first year ends up being average, you still look good to your lender. And, looking good to your lender can be important as you expand your business…maybe you’ll want to add additional space or other franchise locations.

5. Put yourself in the lender’s shoes. Would you loan money to you for a business? Using this approach can help you “sell” your franchise business start-up to the lender.

6. It’s not that unusual to get a franchise business loan turned down these days. Some lenders are still rather conservative in their approach to small business loans. Walking into your lenders office with a powerful business plan can change that. Big time.

7. Don’t be too hard on yourself if your franchise business loan gets turned down the first time. It happens. Talk to the lender. See what’s missing. Talk to a few of the franchisees that you’ve contacted during your research. Ask them for suggestions.

You can do this!

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