There's no use waiting for cash to fall from the sky. To get funding for your franchise, you have to know where to look.
According to Brad Gilbert, national franchise manager with Comerica Bank, the best way for a prospective franchisee to get financing is via an SBA loan. "It's a great vehicle," says Gilbert. "You're typically getting in with less equity than with a conventional loan, and most lenders won't touch deals without that SBA guarantee."
The SBA offers two loans that can be used by franchisees: 7(a) and 504. The 504 is for real estate purchases only, whereas the 7(a) can be used for a variety of other start-up expenses.
Gilbert offers the following for prospective franchisees to think about when applying for SBA loans:
Can your franchise be financed?
Before you set your heart on a particular franchise, determine how likely it is to secure financing. Gilbert suggests asking bankers for their opinion on the franchise you're considering.
Is your lender SBA-preferred?
Make sure your bank meets this qualification. It'll save you time in the loan process. "A preferred lender is able to make the credit decision in-house without having to run everything through the SBA regional office," Gilbert explains.
Are you doing your part?
Gilbert gives all clients a checklist when going through the application and closing process, and it's up to the borrower to make sure it goes smoothly. "The borrower has to be responsive and turn that list around quickly," he says, "because we want to close as quickly as possible, and so do they."
Once your franchise opens and you consider opening more locations, Gilbert says the loan process gets easier. "The second and third stores are easier than the first," he says. "You know what to expect from your contractors, employees and lenders. Everything becomes more routine."