Picking a franchise to purchase can be a difficult task, but finding a franchise loans to fund the venture could prove even fairly difficult. Drafting a business plan, understanding your financial strengths and weaknesses, and connecting with the right lenders are just a few of the steps toward getting the funding you need.
Franchisees in search of financing have had it rough the past few years. But it’s not all gloom and doom on the lending front. Recent numbers for SBA franchise loans issued by banks but guaranteed up to 85 percent by Uncle Sam are encouraging. In the 2016 fiscal year, the agency approved around $20 billion in 7(a) loans, the most common type of loans. Franchise business took up more than 1.5 billion of these type of loans, up from approximately $8 million the previous fiscal year.
What’s the outlook for franchise loans in 2017?
It’s trending in the right direction. It continues to be a challenging environment for securing finances. An entrepreneur needs to put the same level of attention into securing the necessary financing for their business as they put into creating their business plan.
I’m encouraged by the direction lending is heading. The percentage of our 7(a) loans going to franchise concepts has increased steadily in the last few years, about 5% year over year.
I’m also encouraged by the engagement of many franchise organizations, for example the International Franchise Association, with those in the lending community. I’ve noticed this past year that there’s a strong working relationship between the two.
Are lenders their edge with franchisees?
I talk to banks every single day. They’re talking about their plans to grow and to expand. They see opportunities as we look forward into 2017, and that only means there are going to be increased opportunities for small businesses to find the capital they need.
How much startup funding should franchisees bring to the table?
For most startup businesses, it’s a good idea to plan to have approximately 20 to 25 percent, to put down and borrow. There are some lenders who will lend more, and there are some lenders who will require more of a down payment.
Most of our lending partners will expect the business owner to share in the risk. It’s not reasonable for a business owner to expect to receive 100 percent financing from their lender.
Is it more difficult to get a larger SBA loan than a smaller one?
It’s really case by case. As you take a look at the lenders in your community, look at how many SBA loans they’ve done. There are some lenders who specialize in small dollar loans and others who specialize in larger loan sizes.
What tips can you offer franchisees?
It can’t be stress enough the importance of aligning yourself with local professionals, whether it’s a Small Business Development Center or your local SBA district office. These offices employ financial professionals who look at business plans every day. Use them as an objective set of eyes.
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