If this is your first time opening a franchise location, one of the most important factors you need to consider is the financing options that are available to you. Don’t make the mistake of using up all of your liquid capital for startup needs. You need to keep as much working capital available as possible for the first six months to a year of business operations. For other startup needs, use a loan to cover costs.
What types of financing are available to new franchisees? You may think that it’s impossible to get funding if your location is just getting off the ground, but that’s rarely the case for franchisees. One amazing tool is the franchise SBA loan.
What Is an SBA Franchise Loan?
SBA financing involves loans earmarked for small businesses. These loans are provided by lenders across the country, but they’re backed by the U.S. Small Business Administration. Essentially, the government gives lenders a guarantee of repayment.
A franchise SBA loan is a version of SBA financing that certain franchisees can qualify for. This kind of funding provides low-interest rates and long terms for repayment for many different business needs.
Which Franchises Qualify for SBA Loans?
The SBA has a specific list of requirements for any small businesses that want to qualify for financing. One of the principal factors is the size of the business. Only companies with a limited number of employees can meet the SBA’s definition of a “small business.”
The size requirements depend on the industry; there’s one limit for manufacturers and a different limit for retail stores, for example. These guidelines also apply to franchises. To help new franchisees, the SBA has a list of qualifying franchises called the SBA Franchise Directory. You can easily check this list to see if the franchise you’re interested in is included.
What Does It Mean If Your Franchise Is on the List?
Franchises that are listed in the directory are considered automatically qualifying as small businesses. Of course, that’s not the only requirement for getting a franchise SBA loan, but it’s a good start. Other requirements involve your personal credit score and financial history. The good news is that you probably already met most of these requirements during the franchise application process.
SBA loans can be used to purchase real estate, build a new location, buy equipment and cover many other needs. You can also include working capital in your application.