Business Franchise

Usually people finance their franchise business from different sources. Applying to the SBA (Small Business Administration – one of the main government agencies supporting small business) you can avoid that rule. They finance or guaranty only if the prospective owner also invests his personal money.
 So this rule limits the opportunity to get a credit financing on the one hand. But on the other hand it helps the prospective franchisee to choose what expenses to cover himself and what to finance on a credit basis. Let’s distinguish the eligible and non-eligible purposes according to the SBA.
 

“Good” purposes
1. Capital investment
Capital investment is rather broad concept and can include (but not only) the following:
-to purchase land or buildings,
-to cover new construction as well as expansion or conversion of existing facilities;
-to acquire equipment, machinery, furniture, fixtures, supplies, or materials for construction;
2. Operational financing
Operational financing is used for current business purposes like buying raw materials and inventory, paying of accounts payable, seasonal financing, contract performance, construction financing, export production, and for financing against existing inventory and receivable under special conditions and so on.
3. Buying somebody’s business (no comments)
  “Bad” purposes
1. Financial transactions
Like in the situation with capital investment this purpose is very broad one and may include:
- refinancing existing debt (especially in the situation when company had no sources to pay it back and these sources don’t appear after refinancing);
- financing change in ownership or part of the ownership;
- repaying delinquent state or federal withholding taxes or other funds that should be held in trust or escrow.
2. Non sound business purpose (for the SBA)
 The last thing to say: even if your business meets all of these criteria it doesn’t guaranty that you will get the money. Unfortunately…

This entry was posted on Wednesday, June 28th, 2006 at 6:52 am and is filed under Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.