It’s an easy and straightforward way to break into the world of business – and be your the boss of your own business.
Additionally, franchises are the most affordable companies to finance as they don’t usually carry many of the startup risks (unknown risks) the banks, as well as lenders generally avoid. Because the majority of franchises have established brand names, proven profitability and cash flow reputations and are able to perform very well virtually everywhere (globally) These models of business tend to fly through the process of underwriting loans and from application to financing within a matter of minutes. .
In reality actually, the Small Business Administration (SBA) hopes to speed the process of financing and provide franchise loans more frequently, has created an inventory of “SBA-approved franchises” which is a set of franchises which are approved by the SBA has already reviewed during their underwriting processes.
Based on Jim D, former SBA.gov site moderator
“SBA-approved franchises” are a select group of commercial opportunities approved as a franchise by the SBA. If you’re looking to secure an SBA-backed loan, it’s simpler and faster to apply for a franchise approved by the SBA. Franchise applicants approved by the SBA can benefit from a simplified review procedure that speeds the loan application process. Because the franchise in question has been approved for loan approval, the review process is simpler and focuses on particular elements of the company plan.”
If the SBA is so fond of franchises what loans do they have available?
3 Loan Programs from SBA for Franchises
First off. The SBA does not provide loans directly to businesses and franchisee owners. This means that you’ll need to make your loan request to an lending bank or an SBA Financial institution. But, these lenders also recognize that the SBA is a fan of franchises with proven success and is willing to examine and approve your request.
If you are looking for an SBA loan to finance your franchise You should concentrate on the specific needs of your financing and align them with SBA loan requirements. SBA loan program in the following manner:
- SBA 7(a) credit program.: This is the most popular program offered by the SBA, designed to finance nearly every aspect of business.
In accordance with the SBA according to the SBA, the 7(a) loans program may be used for:
- To create long-term working capital that can be used to cover operating expenses or to pay accounts payable, and/or purchase inventory
- Needs for short-term working capital, including seasonal financing and contract execution, construction financing and exports
- Working capital is based on the amount of inventory in the present and accounts receivable with special conditions
- To purchase machinery, equipment furnishings, or other materials
- To buy real estate, including buildings and land
- For the construction of a brand new building or renovate an existing one
- to start a new business or to assist in the expansion, acquisition, or operation of an existing company
- Refinance business debt subject to certain conditions
The program is capped at a amount of loan that is $5 million. The average in 2012 the most up-to-date figure reported, was around $337,730.
As a result, the majority of SBA loans have extended loan term, which makes the monthly payment affordable. Home loan repayment terms can run longer than 25 years, and up to 10 years for equipment as well as up to 7 years in the case of working capital.
The majority of SBA credit is now believed to be completely secured with personal or business assets. But, even though the SBA is expecting this, they won’t decline a loan based on the lack of collateral.
Also, remember that the lender to deposit 20 percent or more in cash down or equity into the loan. This means that the SBA only provides only 80% of the needed amount.
It is evident that the SBA program covers nearly every need for financing for franchises that include real estate purchase and development to business equipment and capital requirements. If this is the case, and you’re looking to purchase or extend your franchise, begin by clicking here.
- The CDC/504 loan programme A 504-based loan plan, just like that of the 7(a) program is a great option for franchises. However, the program is restricted to the purchase of equipment and real estate.
In accordance with the SBA 504 loan program is utilized for:
- Purchase of land, including the existing structures
- Acquisition of improvements , including street improvement, planning utility, parking, and landscaping
- New facilities are being built or renovation, modernization or the conversion of existing facilities
The main benefit of this plan is that the equity, or down payment that is required of the borrower is smaller generally about 10%, needing less expense out of pocket.
How does this program work. The program was created to help promote growth in businesses and to encourage development in communities. Therefore, when a 504 loan is requested and approved, the local Community Development Corporation (CDC)–the community-participating portion of the loan–will fund and guarantee up to 40% of the loan request, and a local SBA-approved bank will fund 50% of the request. The loan will be repaid with the remaining 10% for the lender. Three partners committed to the same goal that is the long-term success of your business.
The program is able to offer as much as $5 million for companies that could and will create jobs in the local community and in excess of $5 million for businesses that have a public benefit, for example, the reduction of energy or alternative fuels as well as rural development companies . Up to $4 million for small manufacturing companies that create jobs.
In addition, to make the loans and the consequent payment more affordable, leading to long-term loan success for the borrower The SBA will permit loans with terms of between 10, 20 and 30 years.
- SBA Express Program It is the SBA Express Program is like the younger brother of SBA’s 7(a) loan program, but with certain advantages and limitations.
First, this program provides the ability to review your application faster. In fact the SBA promises that your loan application will be approved within under 36 hours. However, even if you receive a reply, it doesn’t mean you’ll receive approval. This is just an indication that the SBA has accepted your application. And they’ll typically ask to provide more information in the meantime however at the very least you’ll know that it’s functioning.
The second reason is that the maximum amount you can borrow for this loan program is 350 000 dollars. It’s not much nowadays however this could still be sufficient to help get you the franchise that you’ve always wanted — particularly when you consider the typical full 7(a) loan that is around $337,730.
Third The third SBA will only cover the loan up to 50 percent of the loan amount so the bulk of the loan risk will rest on the lender or bank. If your loan is strong enough, the 50 percent guarantee could mean the gap between acceptance and rejection.
In addition, they offer the loan term of up to 7 years. They can be used to cover almost every capital-related need for businesses.
What’s a small-scale business?
In order to be eligible to receive an SBA loan your franchise has to conform to the SBA’s definition of a small-sized business:
- To make money.
- Employ up to 500 workers as well as 1500 to produce.
- A business that earns under $21 million of annual revenue is a lower number than certain industries or businesses.
This is suitable for nearly every franchise business that is an individual.
Franchises are a great option to start your career in the world of business with an established, known business model. However, like nearly every other business in the world financing this franchise to start it or expand it remains a daunting obstacle to conquer.
However, as stated and hopefully shown, franchises tend to get better approval rates when using government-guaranteed financing programs like SBA loans. It’s not only that the SBA considers these kinds of businesses in a positive manner, but banks as well as other business lenders are other partners required to ensure that you get you your SBA credit approved. fully funded.
But, just because your franchise choice is doesn’t appear in the SBA approved list and the loan application and the use of the funds meets the requirements does not necessarily mean that you’ll automatically be granted approval. The only way of knowing whether you or your deductible is eligible is to submit an application. Also, since you must apply regardless of the method you select You can also apply to an institution of finance or a business finance company that is already working with the SBA and this will increase your chances of receiving the funds you need to realize your dream of a franchise