Business Franchise

Some time ago I promised to write about financing your franchise business. I think that today is a good day to start. My first “finance article” will be dedicated to small companies because:
-I like small business as they produce goods and provide services that big companies don’t even consider;
-for small business it’s much more difficult to find money and also to find the information about where to find it and how to apply; they don’t have a separate department dealing with credits and refinance in their structure. As a result small business owners with less than 10 people stuff very often have no time to look for the most attractive variant of financing.

Here in this article I’m going to speak about credit, finance and refinance opportunities provided by SBA (Small Business Administration). Certainly the first thing to be mentioned is that SBA is not a bank or financial institution. Their goals expand much wider than financial sphere. And in many cases they don’t give credits but provide guarantees for loans made by private and public financial institutions, government organizations and local authorities.

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SBA is a guarantor of loans. As a franchisee you may need it to increase your reputation in franchisor’s or lender’s opinion. If you need it would be right to apply for THE BASIC 7(a) LOAN PROGRAM
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Basic 7(a) Loan Guaranty
According to this program small companies (both new and existing) can get a guaranty from the official government organization to increase their eligibility to get loans. It means that there can be some situations when you apply for a credit but bank or other financial institution doesn’t want to finance your business for some reasons. Why can this happen? Maybe the banker doesn’t believe in your business idea or your professional skills to realize it. Maybe you don’t provide good collateral from bank’s point of view… Anyway they don’t say NEVER but need something extra to change their negative decision.
The procedure is rather simple. Small-business company turns to SBA, and they guaranty the loan given by commercial lending institutions. It’s important to say that even after that guarantee bank or financial institution is not obliged to give you a loan. But most American banks do, and there are some financial institutions that lend money to small business only under SBA guaranty. 

It’s a very flexible program as SBA will guarantee to loan for a wide number of business purposes. As they say you can get financing for:
-working or operational capital (it’s very essential for retail business to purchase the initial range of products);
-machinery, equipment, furniture and fixtures (usually the largest part of start-up capital);
land and building including purchase, renovation and new construction (as I think this one is not so important as you can get a loan through normal lending channels because real estate is a good collateral and most banks and financial institutions agree to finance them);
-leasehold improvements (not very important as it’s a usual practice when franchisor provides this, but it not than you can apply for this too);
-and debt refinancing (under special conditions).

The loan maturity differs for different purposes. For example, the maturity of the loan for working capital is up to 10 years, but generally up to 25 years for money spent to purchase  real estate.
(to be continued)