Posted on Tuesday, 26th January 2010 by Admin
The South Florida Business Journal recently reported that lending opportunities for strong franchises are starting to become more available compared to non-franchise applicants. The usual criteria of creditworthiness, industry experience and a well prepared business plan are still utilized, but in this time of rapidly declining commercial real estate, other collateral is being considered by lenders.
It is very common for franchise applicants to rent space. Subsequently, no commercial real estate is offered as collateral. Other forms of collateral offered include bank accounts, account receivables, inventory, equipment and more. Banks are carrying significant amounts of commercial real estate as collateral, and franchises offer an opportunity to secure other forms of collateral.
Banks vary on franchise preferences; some prefer lending to an existing franchise business that has a financial history and others prefer a strong franchise model with a history of success. Two important factors of the model are consistent quality throughout the franchise network and a consistent realistic budget furnished by the franchisor.
The SBA must review the contracts between the franchisor and the franchisee before the SBA will guarantee the loan. Should the franchisor contractually exert too much influence over the franchisee, the SBA will consider the franchisee to be an affiliate of the franchisor rather than an independent small business. In such cases it will deny the loan application. This contract review status can take months.
The SBA has a preapproved franchise list with hundreds of opportunities at www.franchiseregistry.com. To get on this list, each franchise must present all their contractual material to the SBA. When approved, the franchise pays $2500 to be registered on the list. The SBA will consider guaranteeing a loan for a franchise applicant not on the registry, but the review process can take many weeks.
Dave Von Holten
Co-Founder
Business Credit Services, Inc.
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