Franchise Loans for Beginners

Perhaps you have thought about starting your own business for some time, and have determined that a franchise is ideal for you. Be prepared to roll up your sleeves even before you open your doors for business as a franchisee. There are multiple things to consider, from legalities to logistics and the all-important issue of financing the business. Franchise loans of some type can help make that possible.

Franchisors finance the money themselves in only a few instances, but they or fellow franchisees will generally help with advice on matters like projecting cash flow and preparing a business plan, which helps you strategize and optimize your chances of success. Hopefully, the franchise you are interested in is a good fit for you. It also helps if they are a recognized franchise with multiple locations, since this may convince your lender that their investment is sound.

In preparation for franchise loans, borrowers need to prepare documentation, including copies of personal income tax returns, financial statements, and verification of the source of franchise down payment. Your credit history will be of concern as the lender investigates your background, qualifications, and the financial resources you have in place. Lenders might expect potential franchisees to contribute up to 30% of the total cost of the franchise. Be clear on a repayment plan. Overlooking any of these key items will question your suitability to run a business.

Loan Options and Securing Your Franchise

Aside from banks and other financial institutions, lenders in the franchise industry now include companies exclusively dedicated to helping franchise owners secure financing. This last group in particular does a great job of packaging your loan request and offering valuable knowledge and customer support throughout the franchise loans process.

Whatever lender you approach will address various loan options with you. Beginners in small businesses might be advised to obtain a Small Business Association (SBA) Loan. In this case, the SBA does not lend money directly to individuals but instead provides a repayment guarantee to the lender involved, and the lenders themselves put up the money. SBA loans are partially backed by the United States SBA in case of borrowers default, making this loan product an attractive alternative for lenders.

During this process, you must give careful thought to a contingency plan for any setback as your business ramps up. Once you have followed all the guidelines and your loan application is in place, you should increase your chances to succeed in your business.

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