Think about your daily routine, you might stop at a coffee shop in the morning, perhaps you workout at the gym in the afternoon or go for dinner with friends in the evening. Every place that you visit, and every business you connect with during that day, exists because of an idea and an entrepreneur. Whether that entrepreneur comes from a family of business owners, or is starting out on their own with no previous experience, running their business requires a set of key skills. But what are the skills you need and how do you acquire them?
“For many individuals, funding a business may involve taking on significant business or personal debt. With most loans, you would need to start making payments right away. This makes it difficult for your business to grow in its early stages, when you’re trying to build revenue and generate profits. With ROBS funding, you avoid having principal or interest payments, which can greatly impede your cash flow, especially in the early years of business. Using retirement funds can also help your business reach profitability faster. And because you’re investing your own money in your own business, there’s no need to provide collateral, like your personal home.”
At ApplePie Capital, we are committed to fair lending. We make our commercial credit products and services available to all qualified applicants on a consistent and fair basis. ApplePie Capital does not condone or tolerate discrimination against any applicant on any prohibited basis under the Equal Credit Opportunity Act or any applicable state or local law. Fair lending principles are integrated into our corporate policies, lending operations, staff training, marketing efforts, and third-party lending relationships.
Small business term loans. Term loans are typically for a set dollar amount (e.g., $250,000) and are used for business operations, capital expenditures, or expansion. Interest is paid monthly and the principal is usually repayable within 6 months to 3 years (which can be amortized over the term of the loan or have a balloon payment at the end). Term loans can be secured or unsecured, and the interest can be variable or fixed. They are good for small businesses that need capital for growth or for large, onetime expenditures.
For existing franchises looking for working capital, another form of alternative financing comes from monetizing the franchise’s balance sheet to obtain funding. Using the franchise’s commercial real estate, or by tapping into the franchise owner’s personal real estate, an asset based lender can collateralize the real estate and provide working capital up to 90% of the real estate’s equity.
Banks want to see a history of successful borrowing anytime they make a loan. That includes loans for your business. Unfortunately, many businesses don’t have any history of borrowing (especially new businesses), so lenders look at your personal credit scores instead. If you’ve got good credit, that’s a good sign that you’ll handle the business loans well. If you’ve got bad credit, lenders will be more skittish about lending. If your credit is “thin” because you haven’t borrowed much in the past (or if it’s in need of some repair), you may need to build your credit before lenders are likely to approve you for a loan.
Your business plan is essential to get approved for a loan. If you don’t have one yet, it’s time to create one. You need to show, with specific numbers, how you’ll earn money, how you’ll spend it, and your big-picture strategy. Explain who all of the players are in your business, especially management, marketing, and sales roles – those individuals will bring in new business that helps pay for the loan. It’s okay if you do all of those jobs – just explain why that is and your track record of success in those areas.
Spend the next week working on your pitch, your business plan, and on researching your financing options. Remember that your business plan isn’t set in stone. It should remain a “live” document as you progress and as you grow. Don’t stress about it, just use this week to focus your thoughts and bring everything you thought about and learned in week one together.
Biz2Credit can help entrepreneurs secure franchise business financing through its network of hundreds of lenders willing to grant loans. We have helped secure franchise loans for the owners of Dunkin' Donuts, Johnny Rockets, Subway, and other successful franchisees. Veterans, which are increasingly becoming franchisees, can refer to Biz2Credit's page on franchise loans for veterans.
Offering medium-term installment loans with repayment periods as long as 5 years, Funding Circle is a lending partner for established franchisees with a strong credit history. Specifically, you’ll need to be a franchisee with a business at least two years old and have a credit score of at least 620. For qualified applicants, Funding Circle has the advantages of offering faster funding than a bank loan would, as well as offering relatively low rates and fees.
SCORE.org conducted research in 2015 that studied business growth in the United States between 1997 and 2014. They found a 67.8 percent increase in the number of women-owned businesses, compared with a 34.4 percent increase in men-owned businesses. The study also found a huge growth in the number of businesses run by women of color, up an incredible 215.7 percent, with revenues increasing by 193 percent. Latino-run small businesses also saw a massive increase, with small business ownership growing at a rate of double the national average.
Get matched with a mentor who has experience building a business by visiting SCORE.org. SCORE is dedicated to helping small businesses develop and thrive through mentorship and training programs. SCORE mentors can help small business owners write a business plan, determine the type of lending they need, figure out the best bank(s) to approach for a loan and prepare to meet with a loan officer.
Many business owners, however, are under the mistaken impression that they are completely protected from personal liability by filing a Certificate of Incorporation for a corporation. This is not true. The mere process of incorporating does not completely protect the business owners. To lessen the likelihood of such personal or shareholder liability, you should make sure to adhere to certain procedures:
The staff at Key Commercial Capital was wonderful. They made sure to explain all our options in detail and were always interested in the best for us. They verified our documents before submitting for approval to ensure everything was in order and that the application and closing process was as smooth as possible. They were also very responsive and available at all times. I will certainly be back on the next opportunity.
Type of loan. Many types of business loans need to be secured by collateral, whether that’s by your mortgage, investment accounts, vehicle, life insurance or other assets. You may find that while you still need to secure them, SBA loans come with better interest rates and requirements that aren’t as strict as other financing options. The fact that they’re guaranteed for up to 90% of their amount by the government gives lenders the confidence they need to make offers to customers who may be more risky borrowers.
The ROBS option allows you to use funds from your retirement savings to finance your franchise without paying early withdrawal penalties and taxes. This can be an attractive option for franchisees that struggle to get traditional loans and are comfortable with some amount of risk. Those with substantial retirement savings may feel most sanguine removing a portion of those funds for this purpose.
So it pays to have a comfortable cushion, just in case things don’t pan out as expected. And it’s much easier and cheaper to arrange funding when times are good than it is when you’re desperate. Of course, you don’t want to be paying interest on unnecessary debt either, but there are funding options, like lines of credit, that you only pay for when you activate them. In any case, it’s worth researching your options early on.
There are a few companies that specialize in helping franchise businesses find funding, usually by matching franchisees with financing options. Considering the overwhelming options for franchising and the intimidating array of options for financing your endeavor, referring to or working with one of these matchmaker-advisers can be a good idea, especially for those who don’t have a clear idea of what type of franchise they are most interested in.
As a member of the ConsumerAffairs Research Team, Kate Williams, Ph.D. believes everyone deserves easy access to accurate and comprehensive information on products and businesses before they make a purchase. She spends countless hours researching companies and industries before writing buyers guides to make sure consumers have all the information they need to make smart, informed buying decisions.
If you are using the web to help you acquire a loan, beware of "Free" services, sites not certified by TRUSTe or sites with poor Better Business Bureau ratings. These sites may just want your contact information which they then sell to brokers and lenders. It is not a very efficient way for you to get financing and may lead to wasted time, money and calls from unsavory and unqualified sources. Also, make sure there are no hidden fees that either you or the lender will need to make - or guarantees that you will receive a loan.
Franchise business loans typically come with more attractive terms than you are likely to find for any other type of start-up business loan. This is because lenders consider the financial stability, business model, and previous success of the franchise parent company when reviewing a loan application. Banks and alternative lenders are finding franchises to be an increasingly attractive investment. In 2011, the SBA reported approval of $1.5 billion in 7(a) loans for franchises, up from approximately $826 million the previous fiscal year. The 7(a) loan-guarantee program is the SBA's most popular loan program.
Using a stock loan (securities-based financing) allows a potential franchisee to leverage the value of their stocks without giving up ownership of the stocks. Securities based financing allows potential small business owners to get fast, affordable funding, while also having the ability to keep all the upside of keeping their stocks (dividends and stock price growth). Funding usually comes in the form of a line of credit backed by the stocks’ value.
Part of the reason we spent a full day researching and figuring out location has to do with what it will cost you to start. If you’re working from home and not seeing clients, you may find your startup costs are limited to marketing, stationery, any supplies, and legal. If not, you’re going to need enough to set aside for at least the first months rent and utilities of the new space, including all the amenities to outfit your new office.
I usually don’t provide referrals, but in this particular case it is definitely warranted. Karen jumped through hoops with multiple alternatives until we came up with a solution that provided what we needed. At one time i thought we were at a dead end, but learned that Karen continued to pound away until the right solution surfaced. If you need someone to assist up front with your SBA loan, Karen is a perfect choice.
Qualifying for an SBA loan as a new business isn’t easy. You generally need to have a strong credit score (ideally above 680), some collateral, and a 10-20% down payment. However, a large percentage of SBA loans go to franchises because lenders can easily access loan performance data for franchises and predict the franchise’s ability to pay back the loan.
The first step in applying for a franchise loan is making sure you are well-prepared before you connect with a lender. This means that you should have identified the franchise you wish to pursue, and should have your supporting documents and loan package organized and available when you engage with lenders. The goal is to make a solid first impression to show that you are prepared and will successfully put the lender's money to good use and can be trusted to repay the loan. Accessing capital to start your business is perhaps the most difficult step in the start-up process. An online service like BoeFly.com, (we specialize in franchise finance - see what franchise brands have to say about BoeFly) or working with a financial adviser can help prepare you to address any deficiencies within your loan package. Loan brokers will typically cost you a $2000 packaging fee or more, and they may charge the lender a fee of 1-2% of the loan amount, which may come back to you as a hidden cost in the closing costs or in increased interest rates. In contrast, BoeFly has several plans available starting at just $249 to help fully guide you through the process of building a professional, lender ready package and connect you with over 5,000 lenders.
Glad to see your comment! For ideas on which franchise you should work with you can check out our articles on the best coffee shop franchises or the best restaurant franchises. Additionally, to make sure you’re finding a strong franchise, you can read our article on the 50 best and worst franchises by SBA default rate. I hope that helps, and good luck with your future business!
United Capital Source offers franchise business loans, or franchise financing, to help franchise owners invest in growth, open new locations, and stabilize revenue amid upcoming bills or deductions. We understand that franchises deal with an above average amount of weekly and monthly expenses. This is why our franchise business loans tend to carry repayment systems that are different from those assigned to an independently-owned business. Terms will be structured to ensure your deductions do not prevent you from paying your rent and employees at the end of the month.
Bank loan: You’ll need excellent business and personal credit to qualify for an SBA-backed bank loan. The U.S. Small Business Administration provides general small-business loans through banks with its 7(a) loan program. According to NerdWallet, the average SBA loan size is $371,000, although amounts can vary between $5,000 and $5 million. To qualify, you’ll need to provide:
A ROBS isn’t a loan, so there’s no debt or interest to pay back. This lets ROBS-financed franchises conserve more of their income, and as a result, they may be more successful in the long run. You do have to pay monthly administration fees when you do a ROBS, but compared to a loan the monthly fees are about 11x cheaper! This sets you up for a greater chance at long-term success than other financing methods.
The International Franchise Association maintains a directory of franchises that are approved by the SBA to receive SBA funding. Each franchisor in the directory is required to submit a Franchise Disclosure Document (FDD) with information about its company to the SBA for approval. Working with a company that is pre-approved by the SBA will expenditure the process of obtaining an SBA loan for your franchise.
Small business owners are passionate about their ideas and tend to get excited about the little details, leaving the financials alone in the back of their business plan. It’s a mistake to put your financial information as an appendix or otherwise in the back because “it says that finance is not important,” advises Shelton. Your lender wants to feel comfortable that you have a plan for managing your finances, including paying back your loan, so keep your financial information up front in your business plan.
If you can secure a credit card in your company name and make purchases and on-time payments, you can get financing and start building good business credit at the same time. Of course, the credit limit, interest rate, and terms of payment will vary, and each bank or credit union will have eligibility requirements, so this option will not work for everyone.