With this business model has a tendency to fly through the loan underwriting process and away from applications for funding in no time flat. In fact, the Small Business Administration (SBA), in the hope of speeding up the process of funding and financing more franchise loans, has created an “SBA-approved franchise” list – a list of franchises that SBA has been checked through their underwriting process. According to Jim D, a former moderator of the site SBA.gov; SBA-approved franchise is select the business opportunity that the agreement has been accepted by the SBA. When it comes to securing a SBA-backed loans, they apply for approval-franchises have easier and faster. Applicants for SBA-approved franchise benefits of a streamlined review process that accelerates their loan application. Because franchises are pre-approved, review the loan is less complex and focus on certain aspects of the business plan that brand.
So, if the SBA love the franchise so much, what loan programs they offer?
3 SBA Loan Program To Franchise
First things first. SBA does not directly lend to businesses or franchise owner. Thus, you will still have to take your loan request to the SBA bank loan or financial institution. However, this origination also know that SBA Like proven franchise business and are more than willing to review and process your application.
When looking for a SBA loan for your franchise, you should focus on your specific financing needs and match them to SBA loan program as follows:
7 (a) SBA Loan Program: This is the flagship program of the SBA is designed to finance almost all aspects of business.
According to the SBA, 7 (a) loan program can be used:
To provide long-term working capital used to pay operating costs, debt and / or to purchase supplies
short-term capital needs, including seasonal financing, contract performance, financing and exporting construction work
revolving funds based on the value of existing inventory and accounts receivable, under special conditions
To buy equipment, machinery, furniture, equipment, supplies or materials
To buy real estate, including land and buildings
To build a new building or renovating an existing building
To establish a new business or help in the acquisition, operation or expansion of an existing business
To refinance existing business debts, under certain conditions
The program has a maximum loan amount of $ 5 million with an average, in 2012 – the last published figures, to be around $ 337,730.
Like most SBA loans come with longer loan terms to make monthly payments more affordable, maturity of the loan for real estate can go to 25 years, up to ten years for equipment and up to seven years for working capital.
Now, all SBA loans are assumed to be fully guaranteed with a business or personal assets. However, while the SBA expecting this, they will not decline a loan based solely on the lack of sufficient collateral.
Lastly, know that these loans do require the borrower to provide 20% or more as a down payment or their own equity in the deal. Thus, only the SBA will guarantee 80% of the amount needed.
As you should be able to see, this SBA program can cover almost all the financing needs of the purchase of real estate franchising and business development for the equipment for working capital needs. So, if that is what you need to buy or grow your franchise, start here.
CDC / 504 Loan Program: 504 Program loans, such as 7 (a) program, is great for the franchise. However, this program is limited to real estate and equipment purchases only.
According to the SBA, 504 loan program can be used for;
Purchase of land, including existing buildings
Purchase improvements, including grading, street improvements, utilities, parking lots and landscaping
Construction of new facilities or modernizing, renovating or modify an existing facility
But, the real benefit with this loan program is that portion of the equity or down payment required from the borrower less – usually around 10% – thus, requiring less than pocket expense.
How does this program work. This program is designed to help facilitate additional business growth and development within the community. So, when loans 504 requested and approved, Community Development Local company (CDC) – a part of society on the loan – will fund and a guarantee of up to 40% of the demand for loans, a local SBA approved by the Bank will finance 50% of the demand for loans leaving the remaining 10% of borrower. The three partners are all working for the same goal – long-term success of your franchise.