Due to the sheer demand, there exist several methods by which you can secure funding for your franchise. Some of these lenders, such as commercial banks, but a lot of emphasis on credit rating – which requires all sorts of verification on your part. For example, be prepared to have source verification (for the down payment needed), a personal tax return record, and other elements, in order to qualify for a loan package.
Similarly, bank loans are also on the rigorous side; which is why you usually have big brand names qualifying for loans from them. An extended history of cash flow is a sticking point for them, as well as business with a multitude of locations for their franchises. Although not a terribly attractive option for those just starting out, it’s still worth a shot.
Government Options for Financing Franchises
A more attractive alternative could be the Small Business Administration (SBA) route of the federal government. These are inherently less risky than any other non-governmental collateral loan options that are available. Generally, these loans have 5-6 year maturities, with the real estate variant running for more than two decades. Some of the numbers you can expect with this type of loan for franchises are $250,000, $500,000 and even $2 million. To secure one, a bit of equity is required, and although the rate is negotiated between you and a lender in the program, the limits are set by the government – with an eye towards being favorable to the borrower. Keep in mind, however, that any rate acquired from an SBA loan is based on the prime rate, which means that it is subject to fluctuations in the economy.
If you’re a veteran, then the Department of Veteran Affairs has a loan program called Patriot Express that is especially beneficial to military families – active, retired, or spouses of the deceased. These loans are capped at $500,000 and have the most favorable rates of all SBA government loans.
The above options are just to whet your appetite; if you are considering setting up a franchise, drop us a line at Impact Commercial Capital for expert-level help and information.