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Considering borrowing a franchise? There are pluses and minuses to owning a franchise, but first you have to actually obtain one. The SBA can help in some cases. The Small Business Administration or the SBA can provide a great helping hand in securing a franchise loan. However, before you approach the SBA, you will need to try to secure the loan from private institutions on your own as the SBA will help you only if you have been turned down by conventional sources of financing. To have a good chance with private lenders, you should prepare a very good business plan that is complete with financials. Most people will rely on financial projections supplied or hinted at by the franchisor. These numbers are nice and all, but the bank is going to want to know how they translate specifically to your location. You need to know the answer to this and have your numbers down pat. Picking up commercial loans these days is pretty tough. Banks overextended credit last decade and paid a huge price for it. They have now swung back the other way and are being very tight with any credit they might otherwise offer up. In short, there is a very good chance you will be rejected regardless of how good your loan application stacks up. That means turning to the SBA. When you approach the SBA, ask them if the franchise you are interested in is already listed in the SBA Franchise Registry. If it is, it means that the SBA is familiar with your franchise which will in turn mean that your chances of getting a franchise loan are greatly improved. However, you will still need to prove your credit worthiness to the SBA that will conduct an in depth analysis of both your business and your personal situation. You can expect interviews where the SBA official will grill you about your management and business capabilities. He or she will also try to judge you personally before approving your SBA loan. The SBA does not technically grant you a loan. Instead, it typically provides a guarantee on the repayment of the loan up to a certain percentage. For instance, the SBA might guarantee 80 percent of the loan. This means the bank only risks being stuck with a 20 percent default if the business fails. This is a much better risk profile than getting stuck with 100 percent of the risk. The SBA gets more than its fair share of criticism. Notwithstanding the red tape involved with the agency, there is little doubt the SBA has helped millions of companies get up and running. This is particularly true with thousands of franchises, so make sure to investigate your funding options with them. Thomas Ajava helps clients obtain commercial finance loans at CommercialFinanceLoans.com.
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