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Financing Your Franchise

The Small Business Administration (SBA)

The SBA is one of the greatest sources of financing available to franchisees. SBA loans are typically made by a private bank or other lending institution, with a portion of the loan guaranteed by the SBA. The 7(a) Guaranteed Business Loan Program is popular among franchisees. Within this program, the government guarantees loans made to franchisees and other small-business owners who can't obtain financing on reasonable terms through other channels. Lenders approve and service the loans after the SBA has issued a guarantee.

The SBA also offers pre-qualification loans for women and minorities. Within these programs, the SBA prequalifies women and minorities before they approach lenders. Rather than collateral, the programs focus on each applicant's character, credit, experience and reliability.

"Say a woman has been an office manager for a franchise for several years, and her boss offers to sell her the business," says Vicki May, an economic development specialist at the Santa Ana, California, office of the SBA. "Although she has never owned a business before and doesn't have the standard collateral, she has worked on-site and knows how the business operates. If she also has good personal credit and reliability, as far as paying her bills in a timely manner, she would be considered for a loan."

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This article was originally published in the September 1997 print edition of Entrepreneur with the headline: Financing Your Franchise.

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