Franchise Loan

For the spirited entrepreneur looking to purchase a business opportunity, one of the first questions that needs to be asked is whether to go with a new business plan and all the risks that that entails, or to go with an established and less risky franchise.

A franchise can be a number of things. In most cases it is a company that owns the rights to the name and trademarks of a certain brand, sells those trademarks to an entrepreneur, who then sets up a business. The relationship between franchisee and franchisor can end there-this is called a Product/Trade Name Franchise-or it can continue, with the trademark holding company providing a broad spectrum of services, from site selection and training to product supply and marketing plans.

This latter situation is known as a Business Format Franchise, and in this case the franchisor often assists the franchisee as far as providing financing for the fledgling entrepreneur.

How does the franchisor provide funding?

• First and foremost is a franchise loan from the franchisor's personal or private business funds


• Second is a loan from a bank in which the franchisor acts as a go between and a guarantor


• Third, and possibly best for the small business owner, is if the small business has registered with the SBA (Small Business Administration) and their newly created franchise registry. If the franchise in question is listed on this registry, the process towards obtaining an SBA guaranty on a low interest rate franchise loan from a commercial lending company is streamlined and can be far more painless than if the franchise is not listed.

Buying a franchise that is registered with the SBA is not just a good idea because of the ease of obtaining an SBA loan guaranty; it also means that the SBA has checked the franchise to make sure that they do not exert large amounts of control on the entrepreneur. The SBA exists to help the small business owner, not the large franchisor.

The SBA is a governmental organization that specializes in loaning money to what it classifies as a small business. If your business is worth under $7,000,000, and it did not produce a net revenue before taxes of $2,500,000 over the past two years, then it probably classifies as small.

For the entrepreneur looking to purchase a franchise, the SBA has what is known as the 7(a) Loan Program. This program provides 75% guaranties on loans of up to $2,000,000. For the enterprising entrepreneur, getting a guaranty on a franchise loan of that size can be a huge jump-start when financing your franchise.

And this money can be used for almost any sound business plan or purpose, from land and construction to supplies and inventory.

Once you've done the hard thinking about whether or not a lower risk franchise is right for you, getting a loan through the SBA can be a real breeze with an SBA registered franchise.