7 Great Reasons Why Loans Should Be Used for Financing a Franchise

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Financing a franchise can take a lot of work and money, but loans can make things easier. Click here to learn why you should get a business loan for franchises. 

Franchises take the guesswork out of starting a small business. Many franchises are established, have a proven track record of success, and offer corporate structures to support each location. 

Starting a franchise does cost money and takes hard work. While you can't bypass the amount of work needed to get your franchises going, securing a loan can help to reduce the stress of startup costs and improving your franchise's business revenue. 

We all want our businesses to be successful, but that doesn't always mean we have the cash to fork over. Sometimes we need extra help in the form of a loan. A loan symbolizes the investment, time, and effort we are willing to put into our business. 

So, how do we get a business loan for financing a franchise? 

Read on to learn how to get a business loan for financing a franchise and how it can prove to be is a great way to secure your investment, time, and effort. 

How To Get A Business Loan For Financing A Franchise 

Starting a business is a time consuming and stressful endeavor. Not knowing where to get working capital from can make starting a business even more stressful. Check out the following ways a business loan can help a franchise business and how to get one. 

1. Reputable Franchise 

Reputable franchises are a great reason to seek a business loan. Banks and lenders alike will see an investment in a reputable franchise as a safer bet, meaning more capital for you. 

If possible, choose a franchise with a track record for success. Banks need to feel confident your investment will be profitable. Banks want to know and have proof that a franchise can withstand difficult economic times. 

Choose a franchise with many profitable locations and storefronts. Franchises with great reputations for success can translate into your securing a loan for your new business. 

2. Improvement In Your Credit Score 

Financing a franchise can set the stage for improving your credit score. If you secure financing for a business loan for a franchise and make payments in a timely fashion, then your credit score will improve. An improved credit score could be a higher loan amount in the future, which will allow you to expand your business further. 

Your personal credit score lets a lender know that you can be trusted as a borrower. Before seeking a business loan for your franchise, make sure your credit is in good shape. 

Improve your credit score by paying off debt, making payments on time, and getting a credit card you pay on time. Banks will also want to see that you have a positive history with loan borrowing, so having a diverse amount of loans which you have proven to be a responsible borrower are also a plus. 

Order your credit score for free through AnnualCreditReport.com

3. A Business Plan Turns Into Reality 

By securing a loan for your franchise, your business plan comes to life. With working capital, you are able to make your business plan a reality. 

When you ask for a loan from a lender for a business such as a franchise, they want to know what your plan of action is for making that business profitable or for expansion. By selecting a reputable franchise with a track record of success, this part of the process should run much smoother. 

In your business plan, detail how you intend on running and growing your business based on the franchise's proven methods. This will put your lender at ease when considering the loan amount and level of risk for granting the loan. 

4. Your Needs Are Met 

When you get the loan you need, your business can grow and flourish. Businesses help to improve our lives and the lives of our employees, their families, and ours. It also benefits the community and the economy. 

Before speaking with a lender, know exactly what loan amount you need. Being able to inform a lender of a logical amount of money need will help the lender to trust you. 

If you expect your revenue to be $150,000, but are seeking a loan for $3 million, then your lender is not going to take you seriously. Lenders want to see that the loan amount you are seeking is balanced in comparison with your revenue, business expenses, and investment endeavors. 

Also, take into account the amount of collateral you have to offer. The more collateral you're willing to pledge, the higher loan amount you'll receive if all of the eligibility factors are met. Based on your collateral, financial projections, and current revenue and expenses attempt to accurately select a loan amount. 

5. Building A Relationship With A Lender 

Lenders are more likely to provide you with a loan if they've done business with you in the past and know you are a solid borrower. By getting your first loan for your franchise, you open the door to more loan potential in the future. 

So, where should you get your foot in the door and build a business relationship? 

There are three options to consider when selecting a lender for your business loan. These include a loan through the Small Business Association, a commercial bank, or an alternative lender. 

Obtaining a loan from the Small Business Association may take a longer time to secure, but if you're in no hurry and meet the eligibility requirements, then this may be the best option for your company. These loans tend to be the most affordable with the highest loan amount given, longest repayment plans, and lowest interest rates. 

Commercial banks are also an option to consider for your business loan. Commercial banks require a down payment of 20%. While this may seem like a steep price for starting your business, it is an investment in the future of your success. 

If you've saved up a down payment by putting money aside, then great! But, if you don't have a down payment sum, then consider withdrawing this amount from your retirement funds or 401k. Do this by setting up a C corporation and transferring money from your 401k into a shared profit-sharing plan under the business. 

Be aware that this is a risky option, however, and seek business financial advice from a trusted source before pursuing it further. 

If you don't have a 20% down payment, meet the eligibility requirements for an SBA loan, then seeking alternative may be your last option. 

Some alternatives include financing from the franchisor or third party funding lenders may be beneficial. While each third-party lenders has their own requirements, fees, and loan terms, they may help you to secure a loan if you need it fast. Visit this page to learn more about securing a line of credit for your franchise business. 

Financing A Franchise To Grow 

Financing a franchise is the first step to take in expanding your company. Put the money to good use by learning more about how to make your small business grow by following these tips. By investing your loan into further grow measures, you'll be delighted to see business improve and sales skyrocket!

I hope you enjoyed this blog post about great reasons why your financed franchise should get a loan to help pay for expansion.

Interested in more articles about frugal finances?

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