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May Q&A: Available now
This month, the Making Sense team answers client questions related to trade policy developments and their impacts on key economic issues.
Some of the most successful businesses in the world are part of a franchise. By leveraging the entrepreneurial drive and local-market knowledge of ambitious individuals, hundreds of franchisors have built substantial footprints. At the same time, franchisees enjoy the benefits of highly recognized brands, technical support and access to well-established supply chains.
As you consider investing in a franchise business or expanding your existing market presence, franchise financing can play a critical role in smoothing the way forward.
Although owning a franchise offers numerous business advantages, it can require a significant amount of capital to get off the ground or add new locations. To start, franchise fees average between $20,000 to $30,000 and can run as high as $100,000. Beyond that, full start-up costs including expenses such as professional services, site development, operations, equipment and marketing costs can run into the millions.
Recognizing the financial need, some franchisors offer their own funding. Alternatively, there are a number of bank and non-bank lenders in the market who offer loans, including ones partially backed by the SBA.
Of the two types of loans offered through the SBA, 7(a) loans are more common. With the SBA backing up to a portion of the loan amount, they tend to feature competitive rates over longer terms. Borrowers may use 7(a) funds to:
The SBA also backs 504 loans, which are more limited in scope, as they may only be used to:
To see if the franchise opportunity you're eyeing qualifies with the SBA, the agency's franchise directory is updated weekly.
Once you've determined that you're going to pursue financing for a franchise opportunity, pulling together items from the following list can help you build your best business case.
A unique feature of SBA financing—you may have up to 24 months to draw down the dollars needed. Plus, payment options early in the loan term, such as interest-only payments, which exclude the principal portion, can help ensure that your business is up and running before full payments are required.
Whether it's your first time applying for franchise financing or you've done it before, reaching out to an SBA expert can help ensure you present your best business case. This is important because the result of obtaining franchise financing can ensure your business has the capital needed to morph into a thriving, growing venture.
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