Mobile Edition
Print
Get the Mag
Weekly UpdatesWith all the doom and gloom about the economy, it would appear that obtaining a business loan is nearly impossible. Though that's not the case, in these difficult times, banks are more conservative when it comes to loaning money, and applying for a loan has become a tedious process. If you're a franchisor trying to prequalify a prospect, or you've researched investing in a franchise or expanding your current franchise portfolio, you are very familiar with this situation. That's where financial experts who understand the "ins and outs" of the loan process can help.
What works for one person or business, may not work for another. For some, a loan from the U.S. Small Business Administration is the best source, but for others, a local bank may be the strongest option. So how do you know what's the best fit? And how can franchise trade shows assist?
MFV Expositions and the International Franchise Association produce the nation's leading franchise trade shows, including the International Franchise Expo and the West Coast Franchise Expo. These shows are known for bringing the most highly-qualified leads through the front doors. That means attracting top franchisors and matching them with qualified franchisees. It also means supporting those attendees and educating them on the franchise process, including financing. Companies like Diamond Financial and Guidant Financial Group have a strong presence onsite at these Expos to offer financial services to franchisors and franchise prospects.
"My main role at an event like the International Franchise Expo or West Coast Franchise Expo is to network and meet new franchisors and find out how we can do a better job of pre-qualifying people," said Keith Pillow, a business development officer with Diamond Financial. "Franchisors are much savvier these days when it comes to realizing the general parameters a prospect needs to fall within in order to get approved for a loan. I'm here to help start moving those qualified prospects through the process."
A top source for business loans, Diamond Financial helps to creatively structure and package a loan to allow the best possibility of financing. "Diamond is a franchisee's direct source to the nation's largest and most aggressive SBA and conventional lenders," said Pillow. "We offer services from pre-qualifying loan applications and professionally packaging and presenting them to securing commitments and providing ongoing assistance throughout the loan closing."
Pillow said at any given time he has approximately 25 loans on his desk, and each one is different. "It's a complicated process and prequalifying candidates can be a very paperwork intensive and overwhelming process," said Pillow. "Franchisors like to use us because it frees them up to work more closely with leads."
Pillow suggests to prospects a few key points that lenders are looking for.
* Credit scores. Know your credit score and history before you approach a lender. If you have derogatory marks, even if they are small, provide an explanation before you go to the bank. The fewer questions the loan officer has to ask, the better. Keep in mind that if you're married, the lender will pull credit on you and your spouse. Even if 100 percent is in one person's name, they will check both spouses.
* If possible, provide a secondary source of income. And if you're married or single, make sure that your living expenses aren't out of control and that you're living within your means.
* Post closing liquidity. Lenders will not allow someone to liquidate everything they own. They want to see liquid cash for living expenses outside of your income. That can make or break a loan. Have four to six months of monthly living expenses on reserve.
* Be prepared. Walk into the bank with a list of questions and don't be afraid to interview your bank. Ask if they do start-up loans or have worked with the franchise concept you're considering before. Find out about any fees or interest rates. When you go to the bank, have all of your paperwork available, it saves time and you'll be less likely to miss a step in the process.
Guidant Financial Group is a recognized leader in small-business financing. Last year the company helped nearly 2,000 individuals buy a business by means of unsecured and SBA loans and the company's flagship program, 401(k) Small Business Investment. Guidant primarily works to educate consumers as to what their options actually are when it comes to financing.
"The economic climate has impaired SBA lending," said David Nilssen, cofounder and executive vice president of Guidant. "Last year, SBA loan approvals were down over 50 percent from the previous year. In addition home-equity has all but dried up. This has paved way to a few very exciting funding alternatives."
Nilssen said the most common ways Guidant has seen franchises funded these days are through:
* 401(k) Small Business Investment vehicle. This allows an individual to purchase a small business or franchise as an investment without taking a taxable distribution or incurring penalties. Nilssen says this is a great option for an entrepreneur who truly believes in the long-term value of this business and that it is a prudent investment for the retirement fund. This vehicle seems to be very intuitive for entrepreneurs and allows them to invest in a business without taking on a loan. This means that as the business begins to generate income, it can reinvest in the growth of the business as opposed to sending cash away to a bank in the form of interest payments.
* Unsecured loans. Nilssen says Guidant has helped people purchase a business without pledging their home or assets as collateral. With a minimum of a 700 FICO, they can get up to $125,000 for a new start-up business.
Nilssen's advice to anyone starting out in the franchising industry and preparing to get a small-business loan is to prequalify.
"Many real estate agents suggest getting prequalified for a mortgage before you start looking for homes," he said. "Why look at homes in the million dollar range if you can only afford a hundred thousand dollar home? The same applies in small business. I'd suggest getting an idea, through prequalification, as to what you can afford. Then work with a qualified business broker or franchise consultant to identify the right business opportunity for you."
In addition to bringing franchisors and prospects access to top financial experts like Diamond Financial and Guidant Financial Group, WCFE and IFE offer attendees the opportunity to attend educational seminars geared to helping them be successful in acquiring financing.
"Both West Coast Franchise Expo and the IFE provide exceptional information to those considering business ownership," said Nilssen. "They have educational events each day that are taught by professionals and attendees can investigate hundreds of franchise opportunities and finance companies in person."
One such course is "How to Finance Your Franchise," which offers, advice on the franchise investment level he can afford, the preparation and steps necessary to attain financing and how to make him look attractive to lenders. The seminar will also explore the financing opportunities available through the SBA program, equipment leasing and other potential financing options.
"SBA Resource" is another course that is presented by SBA and discusses how the agency can help fulfill your business goals to help you be successful. You can also find out where your local resource partners are and get the assistance you need.
"The West Coast Franchise Expo offers a great platform to speak with franchisors, discuss ideas and learn the "dos and don'ts" to grow a franchise concept," said Pillow. "We attended the IFE show in the spring and it was refreshing to see potential franchisees and franchisors excited about the industry and the future of franchising."
The 2009-2010 franchise event calendar includes:
West Coast Franchise Expo
www.WCFExpo.com
Oct. 2-4, 2009
Los Angeles Convention Center
The Franchise & Financing Expos
www.localfranchiseshow.com
Dallas-Nov. 21-22, 2009
Franchise Expo South
www.FranchiseExpoSouth.com
Jan. 15-17, 2010
Miami Beach Convention Center
International Franchise Expo
www.IFEinfo.com
April 9-11, 2010
Walter E. Washington
Convention Center
For more on the West Coast Franchise Expo, International Franchise Expo, IFA and MFV Expositions family of shows, visit mfvexpo.com. The 2009 West Coast Franchise Expo is scheduled for Oct. 2-4 at the Los Angeles Convention Center. For information, visit wcfexpo.com or call 201-881-1666.
Joel Goldstein is the director of marketing for MFV Expositions. He can be reached at jgoldstein@mfgcxpo.com.
FEED