how hard is it to get a franchise loan

by Uriel Mitchell Published 2 years ago Updated 1 year ago

Full Answer

Is it hard to get a loan for a franchise?

Getting approved for franchise financing can be difficult, particularly if you need startup funds, you need funding but have bad credit, or your franchise has been open for less than a year.

How do you qualify for a franchise loan?

How Do You Qualify for Franchise Financing?Acceptable personal credit history. Your personal credit score reflects whether you are reliable as a borrower. ... Required down payment. Almost any kind of SBA or conventional business loan will require a down payment.Financial information. ... Franchise information.

What credit score is needed for a franchise?

680 or higherSome franchise requirements to take into consideration may include: Credit score. Minimum credit scores vary by franchisor, but most consider a grade of 680 or higher as ideal.

Will a bank give you a loan for a franchise?

Franchisees can apply for a commercial loan with a bank of their choice. Approval usually requires a good credit rating and a detailed business plan. Because the federal government backs a portion of SBA loans, they generally have more favorable interest rates and repayment terms than commercial banks loans.

What franchise is the most profitable?

Most Profitable FranchisesDunkin'7-Eleven.Planet Fitness.JAN-PRO.Taco Bell.Orangetheory Fitness.Great Clips.Mac Tools.More items...•

Do you have to have good credit to open a franchise?

Yes, You Can Buy a Franchise With Bad Credit Still, it's possible. Bad credit isn't an automatic denial. By creating a plan and showcasing that plan to the important parties in your franchise ownership, you can set yourself up for success now and long into the future.

How do franchise owners get paid?

How do franchise owners get paid? Franchise owners can pay themselves a salary or depending on their business entity, they may be able to take a draw from their accumulated equity.

What credit score is needed for a SBA loan?

around 620-640+Is there a Credit Score Minimum for SBA Loans? The Small Business Administration doesn't set specific credit score minimums for SBA loans. However, lenders set their own SBA loan requirements, and you'll typically need a credit score somewhere around 620-640+ to get an SBA loan.

What do franchisees need before banks will consider giving them a loan?

Financial institutions typically require a draft of the franchise agreement, the franchisee's statement of personal finances (including net worth) and a business plan. Once your business loan is approved, Saqib says entrepreneurs shouldn't be afraid to seek help in running their franchise.

How do I find investors to start a franchise?

Top 10 Funding Sources For Your Franchise Venture1: Franchisor Financing Options. ... 2: Conventional Banks And Credit Unions. ... 3: Small Business Administration. ... 4: Business Partners. ... 5: Home Equities. ... 6: Borrowing From Friends And Neighbors. ... 7: Retirement Plans. ... 8: Stock Assets.More items...•

How do you start a franchise?

How To Start a Franchise in 8 StepsResearch Franchises. You can find franchise opportunities on websites like Franchise Direct. ... Evaluate Opportunities. ... Evaluate Costs. ... Draft a Business Plan. ... Get the Franchise License Agreement. ... Form a Business Entity. ... Choose Your First Business Space. ... Hire Employees.

What is the franchise fee for Dunkin Donuts?

Here is a breakdown and ranges of the financial requirements to open a Dunkin' franchise: Total investment range: $97,500 to $1.7 million. Initial franchise fee: $40,000 to $90,000 (varies by location) Net worth: $500,000 minimum.

Can SBA loan be used for franchise?

SBA 7(a) loans for franchises Franchise owners can use this loan for purchasing real estate, fixed assets, working capital and even refinancing existing debts. With amounts available up to $5 million, business owners can use it as a loan to start a franchise and cover initial startup costs.

How should a potential franchisee obtain funds to finance a franchise system that he she wants to enter?

For well-established franchise brands, banks that specialise in franchising will consider lending up to 70% of the total start-up costs including working capital. For newer, less established franchise brands the available finance from a lender maybe lower.

Does the franchisor offer any help with financing?

The Franchisor Some franchisors will help new franchisees start their business by financing a portion of the franchising fee. The franchisors can also partner with lenders such as commercial banks to help new franchisees raise capital to start their business.

How do I get investors for my franchise?

What are the factors that lenders look for in a franchise?

Among the major factors lenders will be interested in are: Credit score. Net worth. Liquidity. For instance, while a credit score of 750 or higher is considered excellent, one of 600 or below is typically viewed as unsatisfactory. Complications like a low score will make qualifying for franchise loans more difficult.

What does your net worth mean for franchise loans?

Meanwhile, your net worth will indicate how much wealth you possess when your financial liabilities are taken into account, providing lenders with a clearer picture of your fiscal position.

What are the factors that determine a loan?

Next, consider your current financial situation. Among the major factors lenders will be interested in are: 1 Credit score 2 Net worth 3 Liquidity

Is franchising a commitment?

Opening any business is a major commitment in terms of both time and money. Before you reach out to any lender, it's essential to do your research and decide if franchising is right for you.

Is higher net worth better?

The higher your net worth and liquidity, the better.

Do you need to start a franchise before you get a loan?

Keep in mind that different franchise brands may have their own requirements as it relates to financing. Always start with the brand before you seek out a franchise business loan.

How many years of tax returns should be included in franchise plan?

You should put together a comprehensive franchise plan, a resume, your financial projections and results (including balance sheets, cash flow statements and more) and personal financial information, which should include up to three years of tax returns. All of this information will give lenders a clear financial profile to analyze.

Should franchisees take out loans?

Not all franchise loans are advisable. You are applying for a loan for good reasons if you’re looking to finance equipment or real estate, are looking into long-term software development or have a large variance in terms of seasonal sales. You should not take out loans to mitigate ongoing losses, acquire non-essential assets or to engage in office buildouts.

Can franchisees ask for less than they should when seeking a loan?

Many franchisees actually ask for less than they should when seeking a loan. Underestimating how much you need could lead to some early issues with a lack of working capital, while overestimating could damage your credibility. Carefully calculate your needs and make a reasonable request.

What is franchise financing?

The best loans for franchise financing can help you open a new franchise, buy an existing franchise, or secure working capital for your franchise. Franchise financing includes SBA loans, term loans, lines of credit, and more. The following loans are faster than a bank loan, and you can apply entirely online.

What does it mean to be a franchise owner?

Becoming a franchise owner gives you the flexibility of owning a business with the added security of being part of an established brand. However, as with owning any new business, startup costs can be high, and you may require infusions of capital if you encounter hard times. Franchisees must also pay a franchise fee when opening a new franchise as ...

How long does Applepie loan last?

ApplePie offers both SBA loans and conventional loans with a five to ten year repayment period at fixed or variable interest rates, depending on the loan product. Read our post on SBA franchise loans to learn more about SBA-backed franchise loan options.

What is a smartbiz loan?

SmartBiz is a viable online loan option for franchise owners who want the security and low-interest rates of an SBA-backed loan but with the ease and speed of an online loan. SmartBiz is the number one marketplace for SBA 7 (a) small business loans online. It offers online SBA loans up to $5 million for commercial real estate purchases, loans up to $350,000 for debt refinancing and business capital, and bank term loans up to $500,000. This lender is only an option for established franchises. You’ll need at least two years in business, a positive cash flow, and good personal credit.

How long does it take to get a loan from Ondeck?

The entire process from starting your application to receiving your funds usually only takes a couple of days.

What is the interest rate on Credibly loans?

Credibly offers a mix of short-term loans, medium-term loans, and merchant cash advances. You can borrow up to $400,000 with the merchant cash advance or short term loan, or up to $200,000 for the medium-term loan. Flat rates start at 15% for the advances and short-term loans , while the medium-term loans have an interest rate between 10% and 36%.

Do franchisees get loans?

Most franchisees will have to get a business loan at some point. Fortunately, compared to independent small business owners, franchisees have traditionally had an easier time securing financing from banks — including loans backed by the SBA (Small Business Administration).

How Much Does it Cost to Open a Second Franchise Location?

Let’s go through all the expenses you’ll need to cover when opening your next franchise location:

Bad Credit Franchise Loan Terms, Rates & Amounts

Here are the franchise funding amounts, terms and processing times you can expect through alternative lenders like National:

Do You Qualify for Bad Credit Franchise Funding?

Over 80% of franchise business owners with bad credit get turned down by banks for the funds they need. Fortunately, alt. financing companies like National approve over 90% of franchise applicants for the funds they need to expand.

How to Get a Franchise Loan with Bad Credit

Step 1: Fill Out a 1-Minute Franchise Loan Application Online. Or, call (877) 482-3008 for a free consultation.

Ready to Open Your Next Location?

Don’t let bad credit get in between you and your goal to open your next franchise location, and start maximizing your revenue.

What Can Franchise Loans Be Used For?

The bottom-line reason for obtaining franchise funding is to further business development. But that can meet many different things; when it comes to franchise funding, the uses can vary far and wide. If you're looking for a business loan to help with scaling up a business or recovering the business after a disaster hits, you may want to explore different financing options. Here, we’ll give you a rundown of how to use franchise funding to its fullest potential.

What Are the Best Franchise Funding Options?

By covering up to 85% of a business loan amount, the SBA (U.S. Small Business Administration) provides help to small businesses - including SBA franchise loans. In plain English, SBA loans give prospective business owners have a way to obtain small business loans for franchise even if they don’t feel entirely confident that they’ll be able to repay the loan.

Why is a franchiser's name well known?

Brand recognition - because they’ve been established and proved their business model as successful, it’s understandable that a franchiser’s name is well-known among customers. Since that’s the case, customers will be more likely to buy your product without second-guessing the quality of service or product.

Is it easy to start a business?

Starting a business is not an easy or simple endeavor to pursue, that’s clear. But what’s even more difficult is starting a business from absolute zero, without any idea of what works and what doesn’t.

Do you need to stock and restock?

Whether you’re talking about usable or consumable products, your company will inevitably need to stock, and restock (and restock…) its shelves. Since every business offers different services, the products required to maintain operational status will vary. Naturally, the costs will also be different from one company to the next.

Best SBA franchise loan options

Essentially, your best SBA franchise loan is one of two options (or a combination, more on that later): An SBA 7 (a) loan, or an SBA CDC/504 loan.

Funding a franchise with an SBA 7 (a) loan

As Smith notes, SBA 7 (a) loans often make the most sense for opening and running franchises, because you can use those funds for almost anything you need to get your franchise going. Here are the details.

Common uses for SBA franchise loans

We've told you all about your SBA franchise loan options, but we haven't talked about exactly what you'll need that money for.

Alternatives to an SBA franchise loan

You likely won’t find a franchise loan with a higher capital amount, longer term, or lower interest rate than an SBA franchise loan. But it takes time, patience and dedication to gather together your SBA loan application and wait for approval—it can take weeks, or even months, to complete the entire SBA loan process.

The bottom line

Clearly, you can’t secure an SBA franchise loan unless you're qualified for one. But if you are, your franchise will benefit from one of the most generous business loans you'll find anywhere.

Demonstrating Commitment

Sorting Out Your Financial Profile

Next, consider your current financial situation. Among the major factors lenders will be interested in are: 1. Credit score 2. Net worth 3. Liquidity For instance, while a credit score of 750 or higheris considered excellent, one of 600 or below is typically viewed as unsatisfactory. Complications like a low score will make qualifying for franchise...

See more on applepiecapital.com

Calculating Your Risk Potential

Put yourself in the shoes of a lender and determine how much risk you represent. "It's all a risk model," Ryan says. "Lenders are pretty direct about what they're looking for. If you understand your financial profile, you'll have a better idea of whether you can get a loan or not. Do an inventory of your assets and liabilities before speaking to a lender." Be transparent and upfront about any iss…