Many small business owners make their leap into business ownership with the purchase of a franchise. They have immediate brand recognition, a proven business model, and sometimes even instant customers.
If you’re interested in starting a franchise, you might be interested to know that there is small business financing designed for doing just that. The Small Business Administration (SBA) not only offers loan guarantees specifically for franchises, they also offer advice that will help you pick the franchise that’s right for you.
Although the SBA does create a list of approved franchises, it doesn’t mean that if the particular franchise you’re looking for isn’t on the list it’s a bad franchise. There are a lot of reasons a franchise might choose to not be on the list. If you choose a franchise that isn’t on the list, it could mean a little more complicated approval process. It also doesn’t mean your loan application is a slam dunk either—you’ll still need to qualify for the loan with the same qualifying standards as any other SBA-guaranteed loan.
The SBA isn’t the only place to look for a loan to finance the purchase of a franchise. If you have good credit, a strong business plan, and some of your own cash to invest, you could qualify for a traditional term loan. Some companies will allow you to roll your retirement funds into a business loan. In addition to other loan types, some franchisers even offer financing or partner with lenders who are familiar with their brand.
Before you get any loan, including a loan to purchase a franchise, make sure you understand the ‘disclosure document’ franchisers are required to give you. Investigate success stories. Don’t take, “You can be as successful as you want to be,” for an answer. And make sure you compare the contract to the sales pitch. When all is said and done, it won’t hurt you to visit an attorney to go over the fine print either—preferably an attorney familiar with franchise law.
The SBA is a great place to start. They have a lot of information regarding the ins and outs of purchasing a franchise. You might also find a lender willing to finance your purchase by completing a profile on Lendio.
You can learn more about asset-based lending HERE.
Click HERE to learn more about buying an existing business.
You can learn more about SBA loans HERE.