SBA Loans

The SBA offers loans for new businesses just as credit unions, commercial banks, and other lenders do. The most common type of loan made to new businesses is the 7(a) loan. New businesses and franchisees can access SBA-backed loans by applying through their lenders. 

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Qualifying for Financing

As a new business owner who intends to engage in a franchise business, you need to come up with a strategy that will allow you to access financing for franchising. Below are few tips that can help you qualify for a loan.

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Determine the Collateral Required

Check the assets you own and determine how much you are willing to put up as collateral. Businesses with enough assets to provide 100 percent collateral for the amount being advanced can access loans easier than borrowers who have lower levels of collateral.

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You can offer assets to secure your loan in the form of equipment, stocks, home equity, business inventory, cash deposits or savings, property, or any other hard asset. However, once you have pledged collateral if your business fails the bank has the right to take the collateral in order to recoup the amount of the unpaid loan.

 

Check Whether Your Target Franchise Is SBA Approved

If you are intending to venture into the world of franchise businesses, choose the one that has been registered and approved by the SBA. Once a franchise has been registered by the SBA, the franchise agreement is usually evaluated and approved for use with all of the franchisees.

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This makes a difference because it helps streamline the process of your loan application, and simplifies the loan application process. Loan applications from franchises that already exist in the SBA registry are often processed faster than other loan applications because the SBA already has the required information for carrying out an evaluation. 

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Borrowing for a B2B Company

Business-to-business companies can usually access financing more easily than companies that deal with consumers directly. In this type of scenario, you can use your clients' invoices to obtain financing from lenders. The process of obtaining cash advances using client invoices is called factoring. The factor takes the role of collecting the full amount owed to you by your client, then deducts the amount advanced to you and any other fee then pays you the balance.

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Lenders That Pay Your Suppliers

Instead of getting a general loan, you can ask your lenders for financing that pays your suppliers first, rather than just giving you a lump sum of money to use for any purpose. This is useful since the supplier can now ship the products or supplies to your business. This type of financing is known as purchase order financing.

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Bank on a Good Reputation

If you franchise a highly reputable business you are likely to have an easier time getting financing. Many lenders have short-listed the franchise businesses they have worked with before and have had no problems with repayments on loans. You can also ask your franchisor to introduce you to lenders who are likely to accept your loan application.

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Franchisors Who Facilitate Lending

Some franchisors help their franchisees with access to loans. This is normally carried out in one of two ways. The franchisor may have a department that guides the franchisees in the process of applying for the loan, or it may have partnered with loan brokers who will help the franchisee's access loans more easily. 

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Guarantee Programs

Franchisors may help their franchisees during the loan application and qualification process via a guarantee program. This means that they agree to pay off a certain amount of the loan in case the franchisee is unable to pay it back themselves. The guarantee program helps the franchisees qualify for small loans to qualify for bigger loans.