Picking a franchise to purchase can be a difficult task, but finding a to invest in the venture could prove even fairly difficult. Drafting your own business plan, understanding your financial weaknesses and strengths, and connecting with the right lenders are just a few of the steps toward having the funding you need.
Franchisees in search of financing have experienced it rough the past few years. Yet it\’s not all gloom and doom over the lending front. Recent numbers for SBA franchise loans issued by banks but guaranteed as much as 85 percent by Uncle Sam are encouraging. Inside 2016 fiscal year, the agency approved around $20 billion in 7(a) loans, the most popular type of loans. Franchise business used more than 1.5 billion of those type of loans, up from approximately $8 million the previous fiscal year.
What\’s the outlook for franchise loans in 2017?
It\’s trending within the right direction. It may be a challenging environment for securing finances. An entrepreneur needs to put the same a higher level attention into securing the required financing for their business while they put into creating their strategic plan.
I\’m encouraged by the direction lending is heading. The proportion of our 7(a) loans intending to franchise concepts has increased steadily in the last few years, about 5% year over year.
I\’m also encouraged because of the engagement of many franchise organizations, for example, the International Franchise Association, with those involved with the lending community. I\’ve noticed in 2009 that there\’s a strong working relationship backward and forward.
Are lenders their edge with franchisees?
I talk to banks every single day. They\’re talking about their plans to grow and to expand. They see opportunities once we look forward into 2017, and that only means you\’ll find going to be increased opportunities for small businesses to choose the capital they need.
How much startup funding should franchisees bring to the table?
For most startup businesses, it\’s a wise idea to plan to have approximately 20 to Twenty-five percent, to put down and borrow. Usually there are some lenders who will lend more, its keep are some lenders who will require more like a down payment.
Most of our lending partners will expect the business owner to share inside risk. It\’s not reasonable for a company owner to expect to receive 100 percent financing of their lender.
Is it more difficult to obtain a larger SBA loan over a smaller one?
It\’s really situational. As you take a look at the lenders in the market, look at how many SBA loans they\’ve done. There are many lenders who specialize in small dollar loans among others who specialize in larger loan sizes.
What tips is it possible to offer franchisees?
It can\’t be stress enough the power of aligning yourself with local professionals, it could be a Small Business Development Center or even your local SBA district office. These offices employ financial pros who look at business plans every day. Utilize them as an objective set of eyes.