Financing Your Franchise
There are several financing options when considering investing in a franchise. You should speak directly with your financial advisors and weigh each option or combination of options very
carefully before making any decisions. If you currently need more than one option, or may at a later time, then it is important to know the potential repercussions of selecting one type over another.
- Some franchise companies may provide in-house financing
- Home Equity Refinance Home Equity Line of Credit
- SBA Loans
- Unsecured Loans (Signature Loans)
- Peer-to-Peer Loans
- Use Retirement Funds without incurring penalties
- Family and friends
A franchise is a very predictable and safe way to enjoy the benefits of being an entrepreneur. Financing a franchise purchase is often a topic that people do not address early enough in the process. Although there are many great business and franchise opportunities available, how you finance your franchise venture often determines the level of success you will enjoy. Is your personal credit good? Do you have management or strong work experience? Can you invest 25% as a down payment toward the total cost of the business? Then, you should be able to receive funding toward a franchise investment.
QUESTION: I’ve found the franchise I want, but I don’t have enough cash to completely fund the startup of the business, so I’m going to need to get a loan I’m just starting to talk to banks and they seem to want a number of things I don’t have, such as a complete business plan with projections for the business. They also expect me to personally guarantee the loan even though the business is a corporation. Is my best option to use the SBA in order to avoid these hassles or what should I do?
ANSWER: This is one of the most popular questions we receive. The best source of information about your financing options is the franchisor. They should be able to tell you, from experience, how likely it is for you to obtain financing from any particular source. It may also be helpful to understand the principles that underlie your ability to get financing, regardless of the lending source. There are “Cs” involved in any decision to loan money to someone: Cash, Credit, Collateral and Character. The fact is that it doesn’t matter whether you go to a bank, use the SBA guarantee service or go to a friend or relative for the loan.
The same basic rules apply to any successful attempt to get credit.
Here’s how the four Cs work:
Most lenders request for a complete business plan. You should have a complete business plan before embarking on any new business startup for a host of other reasons besides just financing. The franchisor you’re working with should have a lot of helpful information or even a template already developed for this purpose. Many franchisors have also set up programs with selected financial sources to facilitate rapid funding of their franchisees. In this case, they should be able to walk you through the process with a minimum of hassle for you. The first thing you should do, once you’re fairly certain you’ve found the franchise you want to buy, is to request this information from the franchisor and start looking into your options.
The Small Business Administration (SBA) Registry lists names of franchise companies pre registered and reviewed to shorten the process for SBA loan applications. Loan applications for registered franchisors can be reviewed and processed quickly and efficiently Listing on this Registry means that the franchise agreement does not impose unacceptable control provisions on a franchisee (which could result in affiliation with a franchisor . The lender and/or SBA must still consider and evaluate, with respect to each application for SBA financing, factors such as general eligibility, credit worthiness, conflicts of interest, character, use of proceeds, and dissemination. We can provide you with a list of franchises on the SBA Registry.
The Franchise Search Group can point you to financial companies that work in the franchise community. The Franchise Search Group has a series of relationships that can help you find the best franchise lending options to meet your business ownership dreams.