Franchise Financing Programs
If you are looking to open a franchise, but are not sure that you can afford the franchise fees, you may want to look into a franchise financing program. Although the Small Business Administration offers loans for small business start-up expenses, it is easier to get a loan for a franchise through a franchise financing program. These programs are set up specifically to help pay for the franchise fees, leases, and other start-up expenses.
When you decide to start a business, you have several choices. You may see a specific need in your community and start the business based on filling this need, for example, a baby sitting service or a house cleaning service. Or you may decide to open a business similar to one that you have seen in another city. This business may be different from anything else in your area. Another reason that you would choose to start a franchise is to have the big name associated with your business. This would help give your business a measure of legitimacy that it might not otherwise have.
No matter what your reason, if you decide that you want to start a franchise, the first thing you need to consider is how you are going to finance the franchise. Franchise fees alone can run from a few thousand dollars to over a million dollars, depending on the type of business. In addition to the franchise fees, you will need to consider the cost of leasing the space you will occupy, and you will need to account for other start-up expenses. This is in addition to the day to day operating expenses incurred from running any business. Getting a loan for the franchise start-up expenses will allow you to use your money as operating capital.
Though the Small Business Administration will sometimes offer financing to start a small business, you may find it easier to get a Commercial Franchise Loan. The terms for these loans may be more lenient for certain types of franchises. Though the Small Business Association is designed to help small businesses and start ups, they will sometimes look at the other businesses in the area to decide whether they are going to extend a loan. If you are starting a business that is unique in town, this can be a good thing. However, if you are trying to start a franchise like a gym or a hotel, and there are other gyms or hotels in the area, they may decide to turn down your application.
If you are trying to start a fast food franchise and there are other types of fast food restaurants in your city, the Small Business Administration may turn you down, even if you have chosen a business that does not have any franchises in your city. A franchise financing program will look at the type of franchise rather than checking to see if there are a lot of other similar businesses in the area. This doesn’t mean that a franchise financing program will blindly loan money to anyone. They have certain criteria that you will need to fulfill before they will loan you money for your franchise start up.
When you decide to find a Commercial Franchise Loan for your franchise, you will want to do a lot of research online. Many franchise financing programs will offer specific terms for all franchise loans. Some of these companies will offer loans for a limited number of franchises. You will need to carefully research the company to determine if they offer loans for the franchise you want to start. In some cases, you can get the list of franchise opportunities where they will offer loans. In other cases, you will want to contact someone at the company to get an idea on whether they will offer financing for the particular franchise you will be starting.
This does not mean that it is difficult to find a Commercial Franchise Loan for your franchise. The answer is the opposite actually. Many of these franchise financing programs acknowledge that a franchise of an established business is a very good business opportunity. In many cases, the company name is well known, and the procedures are well established, saving time and effort. Any time that you know the best way to do things, you will save money for your business.
When a franchise financing program offers a Commercial Franchise Loan, they expect this loan to cover a limited amount of the monetary needs for a new franchise. As a rule, the Commercial Franchise Loan will only cover the franchise fees, in addition to the office or building lease, signs, advertising, and equipment costs. You will need to cover your operating costs, including employee wages and other expenses like cleaning supplies, office supplies, or any other recurring expense.
Though it might seem that the greater burden of expenses is included under the day to day costs, a franchise financing program will make sure that your operating capital is where you can put it to use. As a rule, cleaning and supplies should all be calculated into the forecasted budget for your new company. If you are starting a restaurant franchise, the food items will fall under the supplies category, and you will need to pay for those separately. However, the mark-up on the food will allow you to recoup those expenses.
Some franchise financing programs offer Franchise Business Consulting to ensure that you are running your franchise in the most efficient way. Since the efficiency will help your business pay for itself; that will be your goal, as well. Once your franchise is running smoothly, you will be able to concentrate on other ways to increase your income without spending too much of your operating capital.
Usually, getting a Commercial Franchise Loan through a franchise financing program is easier than getting a loan through the Small Business Association. There is less paperwork to fill out, especially when the franchise financing programs already have information on the franchise that you want to start. You will also get a faster response to your loan application. In recent years, however, the Small Business Administration has worked to streamline their application process.
Though the Small Business Association has a longer term or payback time on their loans, it can be more difficult to get an approval through the SBA. They have many applications that they need to evaluate, and only so much money for funding. Additionally, since there are more franchise financing programs that you can apply to, if one program turns you down, you can apply through other companies. With some franchise financing programs, some franchises are already approved, and you need only supply your information.
Though the Small Business Association will sometimes give a loan for you to start a small business, a franchise financing program is more willing to work with the fees associated with opening a franchise business. A Commercial Franchise Loan is made to help you through the most difficult years of owning a small business. However, if you decide to get a Commercial Franchise Loan, you will want to pay attention to the terms of the loan. Some franchise financing programs include a balloon payment at the end of your terms. This might mean that your last payment is more than you are able to afford to pay. Additionally, the franchise financing program may only allow you to take out a loan for 70 or 80 percent of the total amount you need to start your franchise.
Since the main drawback to a franchise financing program is the balloon payment, there are several ways you can handle this situation. If you decide to go through a franchise financing company, you can put aside extra money through the term of the loan, so the balloon payment does not affect you as much. Or you can work toward being able to cover the balloon payment without cutting into your operating capital. In each case, you will need to determine the best way to proceed with your loan payments.
There are a few things that you need to have ready when you apply for a Commercial Franchise Loan through a franchise financing program. After you have decided on the type of franchise that you want to work at, you will want to sit down and create a realistic business plan. The business plan can be the most difficult part of the application process. However, without a business plan, you cannot get loan financing. Both the Small Business Program and other franchise financing programs will want to know that you have an idea of what you will do once you get financing for your business.
After you have your business plan, you will want to make sure that you have some of your own capital to put toward your franchise. Though the franchise financing programs will help you with some of the start-up expenses, you will still be expected to put your own money toward the business start up too. You will want to have a location for your business. Whether you are going to start the franchise out of your house, or you are going to build a brand new property for your franchise business, you need to be able to answer any questions on where your business will be based.
The Small Business Association has a very loose interpretation on what is considered a small business. If your business has less than $6 million in revenue in any given year, it is considered a small business. As a result, you can apply for a Commercial Franchise Loan through the Small Business Administration.
When franchises first became popular, the Small Business Administration had a very involved application process. There was a large amount of paperwork to fill out for each application. The application process was considered confusing and frustrating, leading many would-be business owners to give up or try to find other methods to finance their businesses.
Over the years, the US Government has encouraged more small business start ups by making the loan application process easier. Though the process has become easier, it isn’t as easy to apply for a small business loan through the Small Business Administration, as it is to apply for a small business loan through a private company. Because the SBA guarantees the loan, however, you may find that it’s more practical to get the loan through the SBA than through a private franchise financing program.
Once you have everything else in place, the most important thing for you to do is to choose a franchise financing program. You will want to find a company that you can work with. The terms of the loan need to be something that you can handle. You need to take all this into account. Once you have weighed all the issues, you can choose the franchise financing program that best suits your needs. Though all the other steps may seem more complicated, this is the most important and most difficult portion of any application for a Commercial Franchise Loan.
Once you have spoken to a company that specializes in Franchise Business Consulting, you will have a better idea of what you are looking for when you look for a franchise financing program. Talking to a Franchise Business Consultant is an important step because they will help you determine if there is anything that you have not considered in starting your franchise. However, once you have considered all the information that you have collected, and reviewed your business plan, you can decide which method you are going to use to finance your franchise start up or expansion.