Just the thought of beginning the business loan application process may give you an instant migraine, but if you’re considering investing in a franchise, chances are you are going to need financial assistance.
Your first step should be to look into the possibility of securing a loan from a commercial lending institution. Do your homework on which ones can offer you the best possible deal on a franchise business loan. Ideally, try to find a loan that a.) has low interest; b.) has little or zero fees; and c.) matures over a long period of time. Begin by talking to lending institutions that are already familiar with you as a customer, such as banks where you may have a checking and/or savings account.
When you meet with representatives of these lending institutions, have a solid business plan drawn up and make sure your finances are in order (including any outstanding debts). Should your loan application be turned down due to the fact that you seem too great a financial risk, then it’s time to contact the Small Business Administration (SBA).
The SBA is a federal agency that was launched in 1953 to “maintain and strengthen the nation’s economy by aiding, counseling, assisting, and protecting the interests of small businesses.” The SBA offers many loan programs to assist small businesses (however, it is important to note that the SBA is primarily a guarantor of loans made by other institutions such as banks). The SBA assists potential franchisees with their loans by providing a guaranty, or a formal assurance to the bank or other lending institution that the debt will be covered should you default on the loan.
In many cases, the SBA may already be aligned with the franchise company you want to invest in. Ask your franchisor whether or not the franchise is registered with the SBA Franchise Registry. If it is, the process of filing all required paperwork will be much less of a hassle, and your loan application will be expedited by the SBA.
Regardless of whether or not the franchise is registered, the SBA will investigate you in the same manner as the commercial lending institution granting you the loan. Once again, make sure your personal finances are in order, and be prepared for extensive questioning on your experience and capability. The interviewer will most likely try to get a good feel for who you are personally, so expect questions that will test your character as much as your business acumen.
For information on how to get started, visit the loan section of the SBA Web site.