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Aquiring a Loan for Franchises

A great way for a person to launch their first-ever business is by purchasing and operating a franchise. Making this move means you will buy into a business model that has been tried and tested time and time again. Pretty flexible financing options for franchisees are available in the market. There is also a broad variety of financial institutions that are not only experienced in dealing with franchisees but also willing to aid these businesses in securing capital.

There are certain advantages to obtaining funding for a franchise as compared to other forms of business financing. Here, we will discuss fundamental franchise financing ideas, plus basic details regarding both franchise loan and ownership dynamics.

Whatever form of business financing you look for, bear in mind that a lender will consider the following three things. Firstly, that financial institution will check your creditworthiness, which includes your credit score and credit report. Secondly, they will ask questions regarding your capacity to pay back the loan. This is naturally the most significant factor at play in deciding your loan eligibility, plus it speaks about your business and segment’s validity.

The third thing is your capability, experience, and expertise in either the industry or business. The third factor will make a lender believe that you are capable of operating efficiently and professionally.

Choose New or Pre-Owned Equipment

  • A small business loan is more than a line on your credit report: it’s a smart investment in your business’ future.
  • There are many benefits to getting a small business loan for your business today.

Maintain Financial Stability

  • A small business loan is more than a line on your credit report: it’s a smart investment in your business’ future.
  • There are many benefits to getting a small business loan for your business today.

Huge Tax Savings

  • A small business loan is more than a line on your credit report: it’s a smart investment in your business’ future.
  • There are many benefits to getting a small business loan for your business today.

Great for Every Type of Trucking Business

  • A small business loan is more than a line on your credit report: it’s a smart investment in your business’ future.
  • There are many benefits to getting a small business loan for your business today.

Qualifications for Equipment Financing and Leasing

6 Months in
Business

Fico Score Over
575

Equipment Quote
From a Vendor

How to Apply

Securing the funds your business needs in order to continue running smoothly is easy with financing options from Building Block Capital. Our application process is easy, fast, and secure. In only a couple of minutes, you can apply for a customized loan for your small business.

After you finish applying, one of our loan specialists will contact you so we can learn a little more about you and your business. Your loan specialist will help answer any questions you have about the loan process and help you determine which loan is the right fit for you and your business. Our high approval rates and quick decisions make it easy for you to get back to running your business.

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The Positives of Owning a Franchise

Buying a franchise essentially means licensing both the brand and the historically proven marketing and business practice knowledge of that franchise. The better and more effective franchises are location planning experts, which will be beneficial to your sales. You can gain an advantage from the capability to purchase other franchisees, as with sourcing your stock, which can reduce your cost. Joining a franchise can be a situation where all parties benefit in some way.

Now, let us look at the examples of effective franchise ownership. Consider franchises like Subway, Wendy’s, McDonald’s, or Burger King. Have you ever seen one of the aforementioned franchises closing a location or stopping their operations? Perhaps it never happened before. The franchises perform extremely well because they have a solid history of franchisees that succeed in the short and long run.

With this kind of track record, financial institutions are ready to extend loans to the franchisees of the aforesaid kinds of brands. Not every franchise has the level of success identical to the more popular businesses cited earlier. Franchise ownership comes with risk, and few franchise businesses have the same record and prolonged existence as the aforementioned ones.

There are numerous franchise opportunities in a broad range of sectors. There is no reason why you cannot discover an opportunity that fits your ambitions, experience, financial condition, and passion.

The Downsides of Owning Franchise

You should weigh franchise ownership benefits against the disadvantages, before committing yourselves to a fresh franchise. Firstly, be aware that, contrary to popular belief, franchise ownership does not guarantee success.

Owning a franchise means relinquishing much influence over business choices. So, when the franchise idea that you have decided to follow proves unsound, or when that franchise operation faces trouble, rescuing your business might be beyond your capability.

While that perhaps sounds extreme, almost every franchise is built on adherence to the business practices and operations that franchisees or owners must follow. In the event of them not acting as per these things, they might lose their ownership right. This adherence tends to apply to not just location selection but also a group of identical products. Because that is extremely risky and restrictive, potential franchisees have to research exhaustively and speak to the maximum franchisees in that group. To a great degree, owning a business is similar to occupying a management-level position in an organization.

When seeking funds for a franchise, you have to consider how willing you are to become bound by all the franchisor-established terms and conditions. Then again, owning several franchise-type businesses is akin to having a management-related job at an entity. So, you may regard owning it as having a job; in this situation, ensure that you like it. Why? Because owning the business could be costly, and after doing so, there will be a financial obligation that is perhaps tough to avoid for you.

Selecting the Best Franchise Business for You

After weighing franchise ownership advantages against the disadvantages, you should start to look into the options available to you. You must discover a business that fits not only your passions and experience but also your way of life.

For instance, several fast-food franchises stay open well into the wee hours, even around the clock. Do you feel that it is possible to manage that kind of operation schedule? Do you wish to be part of the hospitality or food industry? You can pick from many different kinds of businesses, and it is a very personal choice that you should make.

The capability of financing business start-up costs is a different thing to contemplate when selecting a franchise. As stated earlier, there are certain perks to getting funding for a franchise with other kinds of businesses.

The SBA’s Franchise Directory is among the many top places where you may start the research. It is a potentially helpful research tool. When utilized alongside your research, it will help to determine your franchise acquisition decision and in what way to finance that business.

The SBA has made the directory of franchise and non-franchise brands that the organization finds to be eligible for monetary assistance. It will have just those business models which the organization finds eligible under their criteria. When SBA’s loan applicant is a franchise as per Federal Trade Commission’s definition, their name has to be on this organization’s directory to get the loan.

The directory contains numerous franchises that become eligible for SBA’s loans. You can download the directory from the organization’s website in the form of a PDF too.

People regard SBA’s loan as the best available product of its type, due to the low rates of interest and longer payback schedules that come with it. Another good resource with extra details published for potential franchisees is the SBA’s Franchise Guide.

If your franchise’s name is not on SBA’s directory, then your financial institution may request SBA to include it there. The organization has preset standards for guaranteeing business loans, so your lender should make the said request. We will now take a closer look at SBA loans.

Uniform Franchise Offering Circular: Each franchisor has to submit the legal document named UFOC to potential franchisees. You must carefully go through the document, and understand it, and commit to any franchise only after doing so. The document has information regarding the franchise, which includes legal details, financial reports, plus details on the key people related to the franchisor.

Sources of Franchising-Related Knowledge Online

The internet has much information about franchising. As with any other matter, you must be discreet when depending on details on the internet, particularly on a website you have not seen previously. Remember that franchisees or franchise brokers may operate several sites devoted to aiding a prospective franchisee in choosing a business. Always consider whether the resource has a special concern in promoting any particular franchise business, service, or product. When the concern is there, the information available on the place is perhaps biased towards that business instead of being fully objective.

International Franchise Association

For a long time, the IFA has been among the world’s biggest membership organizations for franchisees, franchise suppliers, and franchisors. It is even possible to take part in one of IFA’s events hosted in cities worldwide for knowledge on franchise opportunities. Anyhow, you must remember that they are into franchise advocacy more than anything else, and promoting franchising is their objective.

Franchise Trade Fairs

Numerous big franchise trade fairs happen across the nation every single year. Taking part in one of these will allow meeting and networking with not just franchise representatives but other prospective franchise owners as well.

Franchise Brokers - Do You Have To Work With One?

No topic associated with franchising creates the same amount of controversy as the brokers. As per the franchise consultant named Mark Seibert, more than 50% of franchises utilize the brokers, plus the professionals facilitate around 10% of these businesses’ sales. Seibert also states that the word ‘consultant’ refers to a person working for the sake of the purchaser or potential franchisee.

Seibert adds that the usual brokerage network will promote independent brokers in the form of franchise consultants. This will imply to a few less-sophisticated prospective clients that the professionals work to best benefit the potential purchaser, as well as offer the purchaser consulting advice. This is true to some extent, but understanding the facts more will show that the brokers are no impartial buyer advocates that certain brokers may make their prospects believe.

Brokers may act for numerous franchise opportunities, but franchisors pay most of them. This means almost every one of them technically represents franchisors. If this is the case, it would be difficult to regard them as impartial professionals.

While not every franchise consultant is biased towards their franchise, assuming this to be the case would be prudent until being sure that they are trustworthy. Some franchise brokers work for purchasers for service fees. To discover this, look into not only how the broker gets paid but also the type of association a franchisor has with them. When dealing with franchise brokers, you should be discrete.

Understanding the Costs of Franchise Financing

We hope that you now know the plus points and downsides of owning the business. Besides, you may have a picture of where to seek funding for your franchise, but we will discuss this more closely here.

Franchise Disclosure Document

A potential franchisor must legally submit the FDA to someone when purchasing their franchise. The document will give a rough idea about the costs of possessing and operating a franchise. It will sometimes have the kinds of earnings estimates that help assess how much a potential franchise is worth.

When you wish not to see the estimate in either the UFOC or FDD, ask that franchisor whether they possess an estimate. The legislation does not require having the estimate, which means including it is optional. When a franchisor does not give you the estimate, you can seek alternative franchise references and attempt to obtain the estimates based on the experience of those other franchises.

Franchise Owner Costs

Remember that there exist considerable differences between franchising and opening your business. You being the owner of a business, have to bear several operational costs identical to a franchise, including the following expenses.

  • Franchising fee
  • Tools and supplies cost
  • Communications cost
  • Office/warehouse/retail space purchase or lease cost
  • Utility costs
  • Licensing and permit costs
  • Insurance
  • Accountant and attorney charges
  • Inventory costs
  • Staff salaries
  • Market research cost
  • Marketing charges
  • The cost related to creating a website

Franchises tend to have royalty fees and/or franchise fees. In contrast, royalties or franchise fees may include some costs that franchisees most commonly encounter. Refer to your UFOC or FDD to know which costs are possibly covered.

You should recognize which franchise is right for you, and determine whether it is possible to earn a profit through the business. Then, estimate the start-up capital you will require, and the portion of the capital that you will have to finance. It will take a while for your franchise to break even and become profitable afterward. For your information, the term ‘breakeven’ refers to a phase where a business is neither having a loss nor making a profit. On the other hand, the phrase ‘break-even’ means the action of that business reaching the said financial state.

Do not forget to consider the above-mentioned time factor when you estimate your franchise funding requirements. A good general rule to follow is borrowing more money than you will require to deal with any unanticipated event, disruption, or delay.

Franchise Financing Options

Concerning business loans and borrowing, franchises are like other forms of business. Financial institutions will be readier to offer credit to successful and popular national franchises based on of their long and successful past. Anyhow, also remember that it will take much money to buy one of these franchises. Let us now look at the financial options which you the franchisee can pick from.

  • SBA Loan

As mentioned earlier, when you require franchise financing, SBA’s loan is among the finest options available in the market. The Small Business Administration is not endorsing a franchise acquisition over other business purchases. While the SBA publishes the Franchise Directory, the organization endorses no company in the directory. SBA loans may be attractive, but it is very tough to get the products, and these come with longer approval times than other financing options.

  • Franchisor Funding

Several franchisors will give partial or full credit to make the acquisition of their franchisees possible. If extended, the funding would typically be listed in the FDD and/or published on that franchisor’s site. This financial arrangement can have a greater interest rate than normal, plus it possibly comes with other charges similar to loan origination fees. Never think that the action of the franchisor extending credit automatically translates into the best possible deal. Make sure that you explore the overall franchisor financing cost, and weigh it against the cost of various other financing options.

This form of financing is generally considered the final option if all else does not satisfy the requirements concerned. It may be open to almost every applicant that meets the minimum requirements regarding the credit score.

  • Conventional Bank Loans

The best-known franchise loan source is typically a conventional bank. Franchise financing fees and rates of interest vary by the franchise that gets the money and the credit profile of the applicant.

  • Alternative Financing

As a franchise business owner, it is wise to explore various financing options while attempting to acquire or expand the business. When seeking to cover operational costs, or finance a project, it may be a better idea to explore alternative financing sources, such as a web-based lending institute. Internet-based lenders are extremely popular among franchisees due to the flexibility that these financial institutions offer. Different from the franchisor financing from several brands, as well as conventional bank loans, alternative lenders will possibly provide quick turnaround times (TAT) and bigger loan amounts.

You may also search for financing from an array of sources to meet different business requirements. For instance, a conventional bank loan can provide the funding to buy real estate for the franchise business you own. Anyhow, you may approach a different lender for the money you require to meet the working capital (WC) requirements of that franchise. The financing option you select can aid your franchise in staying flexible, and in enjoying as many advantages of owning the business as possible.

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