Franchise Buying Guide

Treasure Hunt

Is franchise financing within your grasp? Sure--if your aim is true.
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Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

Got a taste for fast food? A drive to get into auto maintenance, repairs or rentals? Whatever your entrepreneurial passion, if you're ready to enter the world of franchising but lack the price of admission, your timing couldn't be better. Availability of funds is at a recent high, and interest rates are down.

Where can you find all that available money? Everywhere. From banks and brokers to friends and finance companies--the sources are endless. But don't rush to your neighborhood bank just yet. There's work to be done first--and you must finish reading this article. But where do you start once you're finished?

"Investigate SBA loans," advises Bob Neagle, general manager of franchise finance at Newcourt/AT&T Capital, a finance company based in Parsippany, New Jersey. "[Lenders] are more interested in working with a first-time operator," Neagle says, "when the loan is guaranteed by the Small Business Administration, which has terms and conditions free of conventional lending constraints."

The SBA's Michael Stamler agrees, pointing to the administration's "reduced equity injection, reduced collateral requirements and longer maturities, which decrease borrowers' monthly payments and thereby increase cash flow." The SBA, which guarantees repayment of 80 percent of loans provided to small-business borrowers by private lenders, approves a very high percentage of applications because most have been screened and approved by lenders, Stamler notes.

"But don't come to us for a loan," implores Stamler. "Go to SBA-certified commercial lenders--banks and loan companies." To find a certified lender, call your local SBA office or visit the SBA's Web site (

Like most lenders, the SBA usually requires loan applicants to submit a business plan. "We want to see if the idea works, if the proposal has been thought through, and if the borrower has the necessary experience to [run] the business successfully and repay the loan," Stamler adds. "We look primarily at projected cash flow; banks look primarily at collateral."

So if you're going to the bank for money, amass as much personal funding as possible first, urges business school professor Jerry White. "Ask friends, relatives, business associates and the franchisor for money. Do anything that will help guarantee the bank that the loan will be repaid [even if] the business fails."

White, director of the Carruth Institute at the Cox School of Owner-Managed Business at Southern Methodist University in Dallas, suggests, "There's no need to borrow the entire sum from a bank. Put together a package with help from family, friends and savings. Short of raising enough funds, you can guarantee the loan by pledging personal assets, such as real estate holdings, or have someone cosign the note."

Paul DeCeglie, author of the monthly column "Money Matters" in Entrepreneur's Business Start-Ups, is a former staff reporter for the Journal of Commerce and American Banker. He can be contacted at

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This article was originally published in the January 1999 print edition of Entrepreneur with the headline: Treasure Hunt.

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