This is a guest blog post submitted by Biz2Credit.
Entrepreneurs and small businesses with limited capital are choosing the franchise route over starting a brand new venture. Investing in a franchise with a proven and established business name is considered a safer bet for earning good small business profits. Moreover, there are more options available for securing adequate funds when opening a franchise. Banks and traditional sources of small business financing perceive franchise funding as less risky than offering loans for an entirely new company.
Small businesses in need of franchise financing may not have to worry as much about getting loans. The Small Business Administration (SBA) in the US has played an instrumental role in making more funds available for small firms with plans of opening a franchise. Recent numbers of loans for franchisees as sanctioned by the federal agency is proof of the greater financial efforts being made to promote small businesses.
SBA franchise loans to fund innovative franchise concepts have increased steadily over the last few years. The encouraging lending initiatives by the federal agency have prompted many small businesses to design creative franchise opening plans that can provide investors with reliable returns.
Commercial bank funding for franchises has also increased over the last few years. The most critical point to secure a bank loan for a franchise is to present good credit scores. Furnishing all relevant financial details, such as a personal financial statement, profit and loss statement, and income tax returns, is required. Be ready to put up a valuable asset as collateral to secure franchise loans from banks.
Banks and traditional sources of small business financing favor franchises with good brand names and successful business track records. The choice of a franchise system can make or break one’s chances for securing bank loans. Franchise loan requests for businesses with fewer locations are less likely to be approved as there is little proof of them showing good performance in all types of economic climates.
Some franchisers also provide internal financing. Financial assistance are offered to franchisees as part of the brand development strategy of a few larger companies. Internal financing eliminates the hassle of getting adequate funds from third-party lenders. Some big brand names also defer initial franchise fees to support new franchisees in opening their store.
Tapping retirement funds, relying on personal savings, and funding from friends and family are some common alternatives to seeking a bank loan.
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