Where can you get the funds to buy a franchise business?
Over 70% of small businesses tap into home equity or personal and retirement savings to partially fund their new venture, this is according to the Small Business Development Centers. Many states allow residents to have home equity "lines of credit", where you can access up to 85% of the equity in your house, but are not required to take it all out at once.
Another option is to apply for a traditional commercial bank loan. Franchisees generally have an easier time securing bank loans than do independent business owners because they have the franchisors track record working in their favor. Something to consider if you're leaning towards an independent business rather than a franchise business.
The SBA (Small Business Association) offers alternative loan options to those entrepreneurs who cannot secure traditional commercial loans, and typically offer comparable rates and terms. One of the most popular SBA program is the LowDoc program where entrepreneurs can request up to $150,000, have up to 85% of the loan guaranteed, and receive an approval response within 36 hours of submitting a complete application. The typical 7(a) SBA loan has a maximum amount of $2 Million, with up to 25 year maturity periods, and up to 85% guarantee for loans less than $150,000, and 75% guarantee for loans above $150,000.
Several lending institutions have qualified for the government's Preferred Lender Program (PEP). Under the PLP, the SBA delegates loan approval, closing, and most servicing and liquidation authority and responsibility to these carefully selected lenders, thereby drastically quickening the process. This is a good way to secure funds for your franchise business is time is of the essence.
A small portion of franchise companies offer financial assistance themselves. Check with the franchisor to see if they have any financing available. These programs might include franchise fee loans, equipment loan packages, building renovation packages, among others. The franchisor will have relationships with property and equipment leasing companies to provide other funding options. It is very common for new franchise business owners to lease their equipment instead of purchasing to minimize their up-front out of pocket expense.
Many entrepreneurs are tapping into venture capital and angel investors to help start their business. You need to weigh the benefit of funds from VC's vs. the return they are expecting and the involvement in and control they demand of your business. In my opinion, this would be my last resort. If you really want a franchise business, and you can't secure a loan, then this may be an option.
Looking for more information about funding your franchise business, go to http://afranchisesolution.com.
Jeffrey Sloe, Internet Marketing Advisor to The Ultimate Team
440-725-3729
jeff@internetmarketingadvisors.net
http://ultimate.org
SOURCES
Business Resource Store (The)--www.businessresurcesote.com
Franchise Finance--www.franchise-finance.com
Franchise Funding LLC--www.franchise-funding.com
Franchise Registry--www.franchiseregistry.com
Small Business Administration--www.sba.gov
Small Business Development center--www.sbaonline.sba.gov/sbdc
Precision Capital Solutions--www.precisioncapital.com
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