Franchise Loans

A franchise loan is a type of loan which is used to finance the purchase of a franchise. This loan may also be referred to as a small business loan. However, purchasing a franchise is seen more different than starting your own business or purchasing a small business as the name behind it is already established. This does not make it much easier to get approved though. You will have to be well prepared before applying for this type of financing so reading up on franchise loans beforehand is essential.

Types of Franchise Loans
There are two different types of franchise loans. First, you have the traditional franchise loan. This is a franchise loan which is financed through the lending program set up by a specific franchise lending company. The second type of franchise loan is the Small Business Administration loan or SBA loan. The SBA loan features unique terms which are determined by the SBA, which is the federal organization that effectively works to improve the nation’s economy by supporting the financing of small businesses to improve chances of growth.

Applying for a Traditional Franchise Loan
If you are interested in a traditional franchise loan then it is very important to know that qualifying for this type of financing is not easy at all. Approval standards are very high and you will require a large down payment to be eligible for this type of financing. The down payment that you are required to make for a traditional franchise loan may be as high as 40%.

It is very important you understand that your personal credit rating and credit history plays a major role in your chances of being approved for this type of loan. Additionally, collateral is typically required with a traditional franchise loan to secure the full amount that is being financed. This type of financing is truly tailored to business individuals that are very likely to succeed and have a well thought out business plan.

Applying for a SBA Franchise Loan
If you are interested in a SBA franchise loan then you will be open to more options for financing. This is the more commonly offered type of franchise loan. The great thing about this loan is that your personal credit rating and credit history is not a huge player in your chances of approval. A strong credit rating will have positive effects on your chances of being approved but you may still qualify even with a bad credit rating. Your credit status is only used by lenders to evaluate the risk.

With a very strong business plan and a bit of starting capital it is very possible for anyone (regardless of their credit) to be approved for a SBA franchise loan. Even those that are not experienced may qualify for a SBA franchise loan but it is suggested that you have advisers included in the business plan to keep a minimal risk in the eye of the financier.

If you are interested in applying for a SBA franchise loan then make sure that the franchise you plan to purchase qualifies. To qualify, the franchise must have under $13.5 million per year in retail sales and be in the United States.

What to Know Before Applying for a Franchise Loan
It is important that you know all the specifics of the type of franchise loan that you want to apply for. Make sure that you know which type of franchise loan you need and the expected standards for it to improve your chances of approval. Also put a lot of focus on creating a strong business plan and work on your presentation. A franchise loan is something that you have to prepare to apply for before you actually do so you can get everything straight and be in the best possible position to improve the chances of approval. Ultimately, this is a great form of financing which can lead to an entrepreneur’s success but remember that you have to do your research and preparation before applying for the loan.