Understanding SBA Franchise Financing Options
Owning your own business can be stressful and can often come down to how well your business model works. Many entrepreneurs will find it much easier to buy a franchise and build around an established business model that is already doing well in the market. Though mostly associated with retail and restaurants, you can find franchises in almost any industry including manufacturing and healthcare. A franchise SBA loan can help you get the funding you need to open or expand your company using an existing and tested business model and brand identity.
Who Qualifies?
The Small Business Administration is notorious for having strict requirements for loans and long waiting periods, a fact that is well made up for by the types and numbers of businesses they can help each year. Big franchises may have an easier time applying for SBA loan programs and even has a list of them on the website who are pre-qualified for loans, letting you skip sending in some documentation with your standard application. You will need to have good business and personal credit as well as demonstrate experience in the industry or in management. One of the easiest ways to apply for SBA loan programs is to find a bank on their preferred lender lists and work with that institution’s loan officer.
How Can They Be Used?
The two most popular franchise SBA loan programs for small businesses are the 7(a) and the CDC/504 loans, which can be used by franchises for various things. The 7(a) loan program is the more flexible of the two types, allowing you to use the funds for both long and short-term working capital, supplies and construction as well as to refinance current corporate debt and purchasing an existing business. With the Certified Development Companies or 504 loan programs, you will need to partner with a CDC to purchase, build or refurbish real estate and commercial buildings or to buy heavy equipment.
How Do You Apply?
You will first need to be approved by the franchiser before applying for one of the SBA franchise loan programs. From there, it is pretty much the same process that you would use to apply for any other type of SBA loan. You will work with a preferred lender to gather the necessary franchise and financial documents, compare the qualifications to your specific situation, and wait for the decision.
Franchise SBA loan programs are designed to help entrepreneurs start and maintain a company with a proven business model and a popular brand. You can find franchises in almost any industry and use your experience in management or in that industry to assure the SBA and lender that you can be successful.
