“Franchising, due to its structure and demonstrable track record of 40 percent growth over the last decade, offers the most promising vehicle to accelerate widespread job creation in this country,” said International Franchise Association President & CEO Steve Caldeira. But he continues to say “acess to capital will remain the No. 1 issue for franchising in 2012”. However, that doesn’t mean that franchising financing sources are not available! Money can be found if you know where to look and can meet different lenders criteria.
If you are frustrated and frazzled trying to find franchise funding, here are 7 great places to look.
- Commercial Bank Loan: Traditional bank loans should be considered but keep in mind large national banks have been more stringent in their loan qualification requirements. In our challenging economic environment commercial banks are seeking to greatly reduce their risks and will require collateral and guarantees. To broaden your search for loans consider a local community bank or credit union which have proven a viable source for many.
- Business Line of Credit: Some lending sources will offer a business line of credit and will not take your assets or income into consideration to qualify. Some lines of credit also may have the big advantage of being unsecured. They require a FICO Score of 680+, an on time payment record, no disputes or frequent credit score inquiries. In contrast to business loans, it’s not necessary to prepare a business plan.
- Small Business Administration (SBA) Loan: Realizing that small businesses are the backbone of our country, designated SBA Banks have been instrumental in helping many realize the dream of owning their own business. SBA loans offer competitive rates, longer terms, no points and no pre-payment penalties.
The 7(a) Loan Program is SBA’s primary and most flexible loan program. With a 7 (a) loan a commercial bank lends money and up to 90 percent of the loan is guaranteed. However, it needs to be pointed out that the bank receives the guarantee, not the borrower.
A Microloan provides small, short-term loans to small businesses. These funds are available through specially designated intermediary lenders. These loans are called micro-loans because the maximum loan amount is normally $50,000 or less. Often, this source of funding is provided to stimulate economic development in rural or underserved communities.
- Online Loan Exchange: There are online small business loan exchanges that can connect you to lenders who are interested in providing franchise financing dependent upon the financial criteria you enter. Examples include companies such as Biz2Credit and BoeFly.
- Franchise Companies: Because of the challenging economy a growing number of franchise companies are providing financing either directly or through third parties. We know of many franchise companies that are closely aligned with small business lenders and sharing this information is part of the no charge service we offer our clients.
Here are some creative ways franchise companies are being proactive in assisting potential owners.
An equipment package could be leased from the franchise company directly or from a leasing company that the franchise company works with.
Another method could be a franchise company providing a promissory note to finance a portion of the franchise fee or starting inventory. A more recent practice by franchise companies that is growing in popularity is to discount the initial franchise fee.
In yet another example some franchise companies are entering into agreements with lenders. Denny’s with more than 1,670 restaurants worldwide recently entered into such an agreement with Pinnacle Commercial Capital to create a $100 million loan pool for new and existing franchise owners to open new restaurants.
- 401(k)/IRA Funding: Many people don’t realize they can use funds from retirement accounts like IRAs, 401(k)s, 403(b)s, Keoghs, SEPs, etc., without incurring early distribution taxes or penalties. By rolling existing retirement funds into specially created programs you can own a portion of a franchise inside your retirement plan. These programs can potentially save you thousands in interest fees and protect your personal credit
Taking the next step.
Many people truly want to own a franchise but give up because they can’t obtain the necessary franchise financing . But take heart knowing that a loan is generally easier to obtain for a franchise owner than for a startup independent business owner because franchises have an established trademark and have proven themselves in the marketplace.
For more information on how a franchise adviser can help you explore business ownership, Contact us. There is no cost or obligation for our service.