How to Finance a Franchise and Secure a Business Loan
By Jocelyn Chavez
Contrary to popular belief, you don’t have to be flush with funds to achieve your business ownership goals. With a wide-range of traditional financing programs and non-traditional financing options available, going from an aspiring entrepreneur to becoming your own boss, is a realistic and attainable pursuit. Choosing to invest in an established franchise or business concept makes it easier to secure financing because franchises feature established business systems and a proven track record- key elements that traditional and non-traditional lenders consider when evaluating a loan applicant.
Funding Your Dream
If the idea of running your own business and being your own boss fills you with excitement and anticipation, but the thought of navigating the loan process elicits dread, you may be interested in learning about the numerous financing options that exist, including:
- Financing Programs from the Franchisor- Many franchisors offer programs that help franchisees gain access to the necessary capital to purchase and launch a franchise. The financing assistance that franchise companies offer varies depending on the organization. Some franchise companies provide direct financing through an in-house lending program, while other organizations offer third party financing programs through preferred lenders that they have established relationships with.
- Small Business Administration (SBA) Approved Franchises- The SBA is an independent agency of the federal government that helps Americans start, build and grow businesses. While the SBA does not offer loans or financing, directly, it does offer SBA-guaranteed loan programs, through lending institutions. There are a variety of SBA-approved franchises available; and since the SBA guarantees a portion of the loan, choosing to own an SBA-approved franchise typically expedites and streamlines the loan process. The significant advantages that SBA-backed loans feature make them a popular choice among current and aspiring business owners. In fact, the SBA supported a record-high $1.95 billion in business loans, the week of December 18 to 24, 2010, the highest dollar volume since the SBA began tracking its weekly loan volumes. The SBA also plays a powerful role in the overall economy by fostering growth. Between September 27 and December 31, 2010, the SBA approved more than $10.3 billion in loan guarantees, supporting more than $12 in lending to small businesses and entrepreneurs across the country.
- Commercial Bank Loans- Large national lending institutions, local banks and credit unions offer commercial loans. Once you have determined the franchise that you’d like to purchase and prepared your business plan, contact banks and lending institutions, regarding the commercial financing options that they offer.
- Home Equity Loans- Securing a home equity line of credit or a second mortgage can provide a source for funding a franchise.
- Investing Your 401K or Retirement Savings- There are many programs available that enable you to roll your 401K or other retirement savings into a business loan.
- Personal Loans from Family and Friends- If you choose to approach friends or family members regarding a personal loan to fund your franchise, be sure to provide them with your business plan, just as you would with any prospective lender.
- Angel Investors- Angel investors often have extensive business experience and will provide business loans in exchange for an equity position, or director advisory role in the company, or franchise.
Just as the various franchise opportunities that are available allow you to expand your professional horizons, the numerous financing options that exist open up a world of possibilities. Being well-informed about the various financing options that are available, arms you with the information you need to make an educated decision and choose the franchise that’s right for you.
To learn more about your financing options inquire to companies offering financing to qualified individuals, or learn more by exploring these articles: securing financing, the advantages of choosing an SBA-approved franchise, financing options amid a challenging economy.
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