Q: What are the minimum and maximum loan amounts?

A: $100,000 is the minimum financing amount; there is no maximum amount.

Q: What types of lenders do you work with?

A: We work with SBA and Portfolio lenders.

Q: What are the financial requirements?

A: For SBA loans, a borrower must be able to inject at least 20% of the total project costs.

Example: For a deal with a total project cost (acquisition, working capital, inventory, soft costs, etc.) of $500,000, a borrower would need to inject $100,000.

For Portfolio loans, a borrower must be able to inject 20% of the acquisition price plus 100% of the funds for working capital, inventory, soft costs, etc.

Example: For a deal with an acquisition price of $500,000, a Portfolio lender will fund $400,000. The borrower must inject $100,000 for the acquisition and all working capital, inventory and soft cost dollars.

Q: What areas are eligible?

A: All U.S. states and territories.

Q: What types of businesses are financed?

A: We work with most franchises, including all areas of Food Service, Automotive Aftermarket, Gasoline / C Stores and most retail concepts. This includes acquisitions and new development.
We will also consider certain independent concepts.

Q: What can the loan be used for?

A: Business acquisition or development, including the purchase of fee simple real estate, and remodeling.

Q: What are the maximum repayment terms?

A: Both SBA and Portfolio lenders will generally finance an “enterprise only” loan for a ten year term. If fee simple real estate is included in the purchase, SBA lenders will usually extend the term to twenty years and Portfolio lenders will extend to fifteen years. Remodeling financing is generally for a term of up to seven years.

Q: What are the interest rates?

A: SBA lenders will charge between 2.00 and 2.25% over the Prime interest rate as published in The Wall Street Journal. This is a variable rate product that adjusts quarterly.
Portfolio lenders typically offer both fixed and variable rate products. The fixed interest rate is tied into the U.S. Treasury rates and the variable rate is tied into the LIBOR.

Q: What are the lender’s fees and costs?

A: The SBA charges a “guaranty fee” which is a percentage of the loan amount ranging between 1.7% and 2.6% depending on the loan size. Portfolio lenders usually charge a “point” which is 1% of the loan amount.

Borrowers must also anticipate paying for all expenses associated with the loan approval including, but not limited to such items as the lender’s attorney, application fees, searches, appraisals, credit reports, environmental reports, etc.

There are a number of sections required in creating your loan proposal document. There is a summary of the request, which simply summarizes The Summary of Request section is similar to an executive summary in a business plan. A person should have a good idea of your entire proposal after reading the summary. It is best to write the Summary of Requests last in order to include all the information necessary.

Borrower’s history is another section that needs to be in your franchising loan proposal. This section will contain a short description of the franchise you are purchasing as well as your own business history. You should also mention how you will build on past success to guide your future success.

The Market Data section of the franchising loan proposal should include an overview of industry trends, assessment of competitors, market size and potential, advertising strategies and an industry trend overview. The beauty of owning a franchise is that the franchise corporation should have this information completed already. Your franchise company will provide you with these facts and figures so you can then pass it along to the bank.

Another section in your franchise loan proposal should be a site analysis. This section will contain information about the chosen location’s parking situation, traffic issues, lease agreements and any other useful information about your location.

Marketing and Promotional Strategy is a key section to be included in your proposal. Advertising can make or break a business so this section needs to be impeccable. You need to think about how you will promote your franchise and drive customers to your store. Most franchises will require some amount of local advertising so you will need to include that information here. You will be working on promoting an already familiar brand since you are purchasing a franchise, which will only help you.

Financial Information is another key section in your franchising loan proposal. The franchise you will be purchasing should provide you with past financial statements dating back at least two years, which you need to include here. You will also be required to provide your personal income statements and tax returns so the bank can check your credit history. A statement of projected cash flow is also an important component to include in this section. If all of this seems foreign to you, visit your accountant or hire an accountant to guide you through this section.

The last section should be Schedule and Exhibits, which is similar to an appendices section of a business plan. These documents all prove that what you are saying is real and you have the documents to prove it. You should include all signed documents from your franchise, your resume, any marketing documents, facts or figures your franchise provided you and any other document that you think might help you case or is important for the bank to see. When in doubt, include the document in this section.

Remember that by preparing this proposal, it does not entitle you to a loan. This is just a way to get your foot in the door. You need to really believe in what you are doing, your abilities and the franchise concept you will be adopting. You need to make the bank feel as secure as a baby wrapped in its mother’s arms in order for them to provide you with a large sum of money.

Amortization – To provide systematic equal amounts of money in order to replenish the full loan amount.

Asset – Something of value against which you can borrow money

Balloon – When the final payment in a loan is greatly higher than prior payments.

Cash flow lending – When a bank provides a loan based solely on the cash flow of the borrower.

Collateral – Assets a borrower provides the bank with as security to ensure loan repayment. If borrower defaults on loan, the collateral assets are the bank’s property.

Debt financing – borrowing another person’s money and paying rent for using it.

Demand loan – A type of loan where the bank can force the borrower to repay at any given time.

Equity financing – selling a part of your ownership therefore relinquishing some control.

Interest – The cost of borrowing money, expressed as a percentage of the total amount.

Lien – An example would be the security interest earned on a mortgage. Something a creditor will claim on property.

Principal - The dollar amount of a loan where interested is owed.

Secured debt - is debt that is attached to a reasonable amount of collateral.

Security interest – A bank’s lien. (see lien definition above).

Term loan – A loan outlining specific time periods when repayment is due.

If your family is unable to loan you money then you should try to get a loan from your local bank. The process of obtaining a loan from the bank can be tedious but can pay off big in the end. Be sure to watch your interest rate, however, so you do not end up having to pay back triple what you borrowed.

You might also consider finding a venture capitalist depending on how large the initial start up costs are in purchasing your franchise. However, venture capitalists will cost you quite a bit of money in the end so be careful in dealing with them.

You can also try asking the United States Small Business Administration for a small business loan. They received federal and state funding in order to aid in the addition of small businesses to the community.

The average loan terms and conditions of an SBA loan consists of:

* Loan total: $50,000 to $4,000,000
* Franchisee contribution: 15% to 30% of total costs
* 7 to 10 year terms (up to 25 years with real estate purchase)
* No prepayment penalties on loans with terms under 15 years
* Prepayment penalties for loans 15 years and above are 5% year 1, 3% year 2, and 1% year 3

Collateral typically consists of:

* Personal residence might need to be pledged
* First lien on all business assets
* Personal guaranty of all those owning 20% or more
* Generally there is no minimum loan-to-value requirements for good franchise concepts
* General management experiences tends to be required
* Owner-operators only – no “investment” businesses
* SBA Guaranty fee of 1.7% to 2.6% of total loan amount
* Lenders might charge a loan fee no greater than $1,000
* Reimburse lender for closing costs

Where Can You Get A SBA Loan to Finance Your Franchise?

If the above terms and conditions are appealing to you, then you might be wondering where to start in obtaining a SBA loan so you can start financing your franchise today. You should contact your franchisor because many franchises have established financing programs with SBA lenders. If they do not already have a financing program with the SBA lender, they might know of good lenders they have worked with in the past.

A franchise owner will also want to grow their business and to do so you will need money. In order to grow the franchise, new employees are needed and possibly new equipment. Then of course, if the franchise is successful, the franchise owner will want to open more shops. All of this costs money, and more than likely will require some degree of financing.

Before you seek your franchise financing you will want to have a clear estimate for the total amount you will need to borrow for your new venture. The following categories should help you to put together a realistic financing estimate.

Location Related Expenses

Property Leases for your franchise, security deposits, monthly lease fees. Purchasing a property include the facility and any land associated with the property combined with yearly taxes. Utilities costs, deposits, signage and licenses. Any renovation costs or site modification costs.

Equipment

What are the total equipment costs to get your franchise up and running?

Operating (Working) Capital

Interior Decorations

Costs associated with revamping your franchise location’s interior and getting it up to franchise standards with the necessary colors, look and fixtures.

Inventory

How much inventory will you need to keep on hand? What are the costs associated with this inventory? Ask your frachise provider what you’ll require in this area.

Insurance

Insurance is required for your franchise location (property location), worker’s compensation, liability, casualty, auto insurance etc.. Depending on your business this fee can have quite a range.

Education

Many times training is provided for you through your franchise arrangements and you may not need to count this a second time for your financing. However in some cases you may wish to get additional training for computer use or skills required that the franchise may assume you already have.

Labor and Training

You will need to cover labor costs for employees on a monthly basis which may begin before you even open your doors. You might have to spend to train your employees or invest your own time getting them started.

Zoning Expenses and Consulting

If the location you’ve chosen for your franchise has not had a business like yours in the past you might incurr zoning expenses. You may also incurr consulting fees to help you navigate the zoning regulations to get your franchise location approved.