Tips for Qualifying for Franchise Financing

Getting started with a popular franchise can be an excellent business decision. Whether you’re a first-time franchisee or an experienced entrepreneur, there’s one thing you can never take for granted when planning the steps to opening day: franchise financing. The right business loan makes everything go much more smoothly, from construction to operating expenses. How can you increase your chances of qualifying for financing that gives you freedom and excellent interest rates? Follow these helpful tips:

1. Read the Franchise Disclosure Document Carefully

In addition to tons of helpful information about the new franchise, the FDD also tells you whether you can apply for financing directly. Some franchises offer financing for real estate, equipment, furniture, marketing expenses, technology and other needs. This can be an advantage, because financing offered by the franchisor typically provides low- or no-interest capital for a wide variety of expenses.

Some franchisors may even provide the option to avoid payments for a while or to deduct opening costs from a percentage of earnings. Of course, the best option depends on the amount of liquid capital you have available and the type of franchise. However, it can be helpful to build up a solid customer base before worrying about loan payments.

2. Choose the Best Commercial Franchise Financing

If the franchisor doesn’t offer financing for all or part of opening expenses, the next step is to visit a commercial lender. Find one with experience in startups and franchises. These financial organizations typically offer two types of all-encompassing franchise loans: SBA 7(a) loans and secured term loans.

SBA loans have a few extra requirements when applying, and it can take a while to receive approval. However, if your franchise qualifies, these government-backed loans can be an excellent option for all your business needs. They cover real estate purchases, office renovation, equipment purchases, computer systems and endless costs. Another government-backed program is called Patriot Express, and it provides ultralow SBA financing rates and fast approval for active-duty military personal wanting to open a franchise location.

Secured term loans apply to larger franchises that aren’t covered by the SBA. They can offer high loan amounts and good mortgage rates. However, you usually need to choose a franchise that is well-known and profitable. Also, you have to be ready to use a valuable asset as collateral in addition to a sizable down payment.

Be Persistent and Passionate

Finding the best option can take some time and thought. However, the benefits make getting a loan worth the effort. With so many kinds of franchise financing to choose from, even new entrepreneurs can get assistance building the business of their dreams.