This option is less likely to work out for those with bad credit because traditional lenders have limits on who they will finance. That said, it isn’t impossible. Your interest rate will however be higher than a standard rate and more collateral will probably be required of you than a traditional recipient. If you think you may still qualify, take a look at some of the loan options offered by the SBA.
The good news is both traditional and alternative lenders are making more loans. A strong economy and record low unemployment rates in 2018 are making all this possible. But a good credit score still carries great value, and if your score happens to be on the low side, here are some lenders you can take a look at when it’s time for getting a small business loan.
Reviewing the brands franchise disclosure document (FDD), speaking with existing franchisees and financial professionals, in conjunction with support from the franchisor, will help you formulate your business plan and build financial projections. Outlining your management and marketing skills, past successes and future goals by including resumes for yourself, planned partners and other employees will allow all parties involved, from the franchisor to lenders, to understand the strengths of the ownership and management team. Personal credit history and financial strength will also play an important role in opening a franchise business.
To comfortably repay your loan each month, your total income should be at least 1.25 times your total expenses, including your new repayment amount, Darden says. For example, if your business’s income is $10,000 a month and you have $7,000 worth of expenses including rent, payroll, inventory, etc., the most you can comfortably afford is $1,000 a month in loan repayments. You can use Nerdwallet’s business loan calculator to determine your loan’s affordability.
Franchise fee: Most companies charge an upfront fee to start a franchise, paid in a lump sum or installments. The amount varies by company, but it’s typically tens of thousands of dollars and usually is not refundable once a franchisee is accepted. For example, Jamba Juice charges $25,000 per store, and Hilton Worldwide charges $75,000 to start a 150-room Hilton Garden Inn.
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.
He is also a nationally recognized employee training expert, and was one of the first people to receive the Certified Professional in Learning and Performance certification from the Association for Talent Development. In 2015, Jeff was awarded the CPLP Contributor Award by ATD for his numerous contributions to the program. He is a past president of ATD's San Diego chapter, where he was a recipient of the WillaMae M. Heitman Award for distinguished service.
There are some apps that help to enhance your business on Instagram. One such app is liketoknow.it. This fashion app lets social media influencers tag their Instagram photos with the items in the picture as well as a link to a retail partner of liketoknow.it. If a follower buys an item through the link, both liketoknow.it and the influencer get a part of the profit. This app helps to introduces Instagram users to new items as well as allows influencers to be paid for their work.
If you do decide you’re going to need space, consider the number of employees you’re going to need and the equipment that will fill the space—chairs, photocopying machines, a fridge, a coffee machine, a reception area, a meeting room, and so on. Furthermore, how quickly do you expect to grow? If rapid growth is in the books, rent a space where there is room for growth and so that you don’t have to change your business address.
Alternative business lenders are comprising a growing part of the financing industry as bank loans become increasingly hard to get. Franchise owners benefit from alternative franchise loans, which have less-strict borrower qualifications than traditional business or SBA loans, and also put the funds in your account a lot faster. Generally, alternative loans have higher rates than bank loans, but they represent an important source of capital to many small business owners, including franchise owners, who would not otherwise qualify for financing. Moreover, some of the best online lenders offer rates that are on par with big banks.
Many banks and credit unions offer financing for franchise purchases, so be sure to compare any franchisor lending rates and terms with these. When you approach a bank, be prepared to disclose all your financial information. While your credit rating is important, you’ll also need to provide a personal financial statement, copies of tax returns and information about the source of your down payment funds.
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Patents. Patents are the best protection you can get for a new product. A patent gives its inventor the right to prevent others from making, using, or selling the patented subject matter described in the patent’s claims. The key issues in determining whether you can get a patent are: (1) Only the concrete embodiment of an idea, formula, or product is patentable; (2) the invention must be new or novel; (3) the invention must not have been patented or described in a printed publication previously; and (4) the invention must have some useful purpose. In the United States you obtain a patent from the U.S. Patent and Trademark Office, but this process can take several years and be complicated. You typically need a patent lawyer to draw up the patent application for you. The downside of patents is that they can be expensive to obtain and take several years,
You’re applying for a business loan, and you may even be organized as a corporation or LLC. However, lenders will almost always want to hold you personally responsible for the loan. If they don’t do that and the business fails, there’s nobody left to repay them. But if you make a personal guarantee on the loan (which is likely a requirement), they can go after you personally, and your personal credit will suffer if you don’t repay.
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.
While it can be tempting to pick a lower-priced option to lower your risk, it’s important to make sure you aren’t compromising too much based on finances. Instead, consider a loan or other method of financing that can help you get you started. Some franchising companies run their own franchise financing programs to help franchisees get in the door.
Eligible funds received through this program can be used for business conversion, repair or enlargement; the purchase and development of land or buildings; the purchase of equipment; debt refinancing as long as new jobs will be created as a result; and/or business and industrial acquisitions when the loan will save and/or create jobs and/or the loan will keep the business open.
The second step is to be strategic about how and where you apply for a loan. Key targets for your loan application would be your own bank, local business lenders and national lenders. Within that group, it is also important to target lenders who may be familiar with the brand and have made loans to other franchisees. That said, don't use a shotgun approach and apply everywhere. This approach can lead to inefficient use of your time and money as the process can lead to several declines from lenders as you blindly submit applications. This process can take up to 120-190 days before you even get funded. Additionally, some lenders charge application fees so it can get expensive, but more importantly, a lender may do a "hard" credit pull on you when you apply. Multiple hard credit pulls within a timeframe will actually hurt your credit score and decrease your ability to get a loan. One alternative is to use a service like BoeFly, which puts you in the driver's seat. It allows lenders to evaluate your loan package and credit and engage with you directly without officially applying at the bank. Only once it seems like it may be a good match will the lender issue you a proposal or term sheet on the financing and then officially invite you to apply at the bank - thereby saving your credit score and time and money. Unlike other marketplaces and "connecting" websites, BoeFly can significantly reduce your time of origination by up to 75% as well as your costs.
For entrepreneurs interested in starting a business, a franchise can be a great way to begin at an advantage. You’ll have a recognizable name and the support that comes from being part of a larger organization, while still enjoying the independence of being in charge. With a little research on the front end, you can avoid unpleasant surprises and ensure you’re prepared.
I’d like to call your attention to a series of video tutorials I did not that long ago as a donation to this community. They are all here and I’d like you to be aware of them. They are organized into modules, 2-10 minutes each. You can pick and choose and jump around, or run through them in the original order. They are here as a resource for you. (Note: the text in bold here highlights links to the videos)
5. Social Media: Depending on your type of business, you will want a social media presence. LinkedIn, with more than 380 million members, is regarded as the business site for connecting with other businesspeople and offers excellent posting features for articles and blogs. Facebook is more of a social friends site than a business-focused site, but it’s also an excellent tool for “getting your word out” to your friends and customers. Both Linkedin and Facebook allow you to set up a commercial page for your new business.
Despite these indicators, financing remains a problem for potential franchise owners. According to Entrepreneur magazine (January 2013), there’s still an 18 percent lending shortfall in the franchising industry. In a bid to boost franchise ownership, many franchisors are taking matters into their own hands and offering financing programs of their own. Meineke, The UPS Store, Gold’s Gym, Masasge Envy and Instant Imprints are just a few examples of franchisors now offering financing to qualifying first-time and multi-store franchise owners.
A contract is, in essence, a written meeting of the minds. While it is typically drawn up by one party and favors the needs and requirements of that party, protecting them from most (if not all) liabilities, it should initially be thought of as a work in progress that changes and grows as each party contributes prior to signing, after which it becomes an official document. “Consideration,” whether it is monetary or a promise to do work or provide a service by a specified date, is at the root of a contract.
A franchise ACH merchant cash advance is very similar to a MCA split in that they are both not considered “loans” but are instead the sale of the franchise’s future earnings. The difference between a MCA and an ACH is how the funder is repaid for providing financing to the franchise. As mentioned previously, a MCA lender will collect repayment by splitting merchant processing sales. With an ACH advance the repayment is made by having the funding company take a set amount from the franchise’s bank account each business day until the advance is repaid.
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.
Bank loans unsecured by collateral are relatively rare, even for those with good credit. In addition to securing a loan with a mortgage on your home or other asset, be ready to be asked to put your own money into the deal, typically about 20% of the amount needed. Even with healthy businesses and solid collateral, most bank loans to new franchisees occur when a borrower has established relationships with a banker, or has previous experience, or is a figure in the community. If that’s not you, consider a loan backed by the U.S. Small Business Administration (SBA).
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.
At some point nearly every franchise will seek a loan or working capital. Knowing your franchise financing options can be the difference between thousands of dollars saved or lost. If you are a franchise business owner seeking financing and need help understanding the options, please reach-out to one of our funding specialists and we’ll help you navigate the process.
Whether you're starting an online business or a brick-and-mortar model, figuring out how to start a business takes time and research. Starting a business involves planning, making important financial decisions and completing a series of legal activities, such as choosing a business structure. Before you can decide how you want to structure your business, you need to know what your options are. Each business structure has advantages and disadvantages, and choosing the right one depends on your unique situation. The most common ways to organize a business include, limited liability company (LLC), corporation, nonprofit corporation, partnership, limited partnership, limited liability partnership, and sole proprietorship. LLCs are a popular choice for small business owners because they offer personal liability protection with great tax and management flexibility, while incorporating a business protects your personal assets and is preferred by outside investors. LegalZoom has all the resources you need to start a business and maintain it. Whether you want to form an LLC or trademark a business name, LegalZoom offers services to help you get it done fast and affordably. LegalZoom can also help you obtain the necessary business licenses and permits for your new business. Get the peace of mind you need when starting a business by letting LegalZoom take care of the details while you focus on the parts of your business that matter to you the most.
Karen Newell at Key Commercial Capital exhibits an exceptional level of professionalism and grit, which is truly refreshing in an industry where both qualities are often lacking among small business funding resources. I love working with Karen because I can rely on her to provide timely, accurate and succinct updates about my funding candidates. I enthusiastically recommend Karen for any and all of your business funding candidates!
Chris Guillebeau is a writer, entrepreneur, and traveler. His latest book, The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future, is now a New York Times bestseller. During a lifetime of self-employment and ventures ranging from online publishing to volunteer work in West Africa, he has visited nearly every country on earth before the age of 35. Host of the World Domination Summit, an international gathering of creative people, Chris is focused on encouraging individual quests while also “giving back.” His main website, ChrisGuillebeau.com, is visited by more than 300,000 people a month.
Despite the relatively easier access to capital that a franchise owner enjoys, there are many different elements to think about before purchasing a franchise. Each franchise is operated differently and will come with its own set of operating and start-up costs. When considering pursuing franchise business financing, here are a few things for you to think about:
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Working capital loans. A working capital loan is a debt borrowing vehicle used by the company to finance its daily operations. Companies use such loans to manage fluctuations in revenues and expenses due to seasonality or other circumstances in their business. Some working capital loans are unsecured, but companies that have little or no credit history will have to pledge collateral for the loan or provide a personal guarantee. Working capital loans tend to be short-term loans of 30 days to 1 year. Such loans typically vary from $5,000 to $100,000 for small businesses.