One of the most attractive attributes of a franchise is the built-in brand awareness that exists; unlike starting your own store, you do not need to invest the untold dollars and time to build the name up to something that’s instantly recognizable.
However, with this huge attribute (and many others) comes a commensurately large investment requirement. Franchise funding is an absolute necessity for the commercial real estate investor – even if you are already independently well off. It is for this reason that government loans under the SBA can amount to $20 million for 30-year terms. Let’s go more in-depth with the available funding options.
Government Loans via the SBA
The introduction to this is the SBA 7(a) loan, which is great for real estate properties. It is simply the best loan in the business of franchise funding, because of its stellar rates and large amount of cash attended by long repayment terms. However, it can be a lengthy and difficult process in qualifying, since very good credit scores are required. The SBA guarantees loans for up to 90% of the value in the event of default.
The Traditional Bank Loan
Bank loans, in general, are on the decline because of interest rates; however, they are still quite popular for franchise funding because of the potential returns. Banks understand and appreciate the superior attributes possessed by a franchise, which often leads to a greater likelihood that they receive their interest payments promptly. Get your credit rating as good as feasible before applying, because the terms, interest rate and principal to which you have access depend on it.
Franchise Funding: The Alternative Lender
This refers to any source of funding that does not come directly from banks or the government. There are franchise-specific lenders that fall under this banner, as well as crowdfunding opportunities, angel investors, etc. Take care that to ensure that any of them are above-board in their dealings with you, and have your own financials in order before applying.