Franchise Business Loan

Opening a franchise is something that every talented and spirited entrepreneur has thought about. It combines the profit-making power of a small business with the low risk nature of an already established name and brand.

Starting a business is not something to be rushed into. It is a process that should be well mapped out by the prospective business owner. In the case of a franchise, most of that thinking has been prepared for you, by the franchisor. In fact, one of the only things left to worry about with some franchises is where to get the money to fund the startup costs.

One of the best ways to get money is a franchise business loan.

Before exploring the available business loans for franchises, let's go over the a basic background on franchises.

Generally speaking, a franchise can fall into two different categories.

• Product/Trade Name Franchising: this is when the franchisor sells the name and other trademarks to the entrepreneur. The relationship does not go further than this initial contract.


• Business Format Franchising: in this situation, the franchisor sells the entrepreneur sells the name and trademarks of the franchise, but also offers business help in the form of site selection, training, product supply, marketing plans, and even assistance with obtaining financing.

No matter which type of franchise you are thinking about purchasing, you may still be eligible for an SBA guaranty on a franchise business loan from a commercial lending institution. In essence, any time you go for a loan, the bank you are requesting money from takes a look at your personal assets and at your business plan to see the amount of risk involved in lending you money.

If the bank feels that it cannot make a franchise business loan without creating a large amount of risk, and if you represent a small business, then it may request the added security of an SBA guaranty.

The SBA (Small Business Administration) can help franchises by guarantying 75% of loans of up to $2,000,000. This makes the loan look much more desirable to the bank, allowing you access to money you would not be able to touch based on your finances and business plan alone.

The SBA looks at a number of factors when deciding whether or not to grant your loan guaranty for your franchise business. These include character, business experience, and personal funds.

If the franchisor you are buying the franchise from has registered with the SBA registry of franchises, then the process is streamlined and can take a lot less from you in terms of time and paperwork.

When purchasing a franchise, the risk involved with opening a new, unknown business is diminished. But finding financing for your project can still be a large concern.

Taking advantage of the SBA's guaranty for franchise business loans of under $2,000,000 can mean access to larger amounts of money than would be possible for the average businessperson. This is especially important for a franchise owner who can demonstrate the ability to make a large amount of cash flow but who doesn't have the capital or collateral to obtain the necessary funds to get the business off the ground.

The smart way to get a low interest-rate, long-maturity, low or no fee loans is to work through the SBA and obtain a guaranty on your money.