The freedom to be one’s own boss yet work within an already proven business plan draws many to purchase franchise businesses. For owners of successful franchises who wish to expand or to open another franchise, there are usually three financing options. Franchisees can apply for a traditional bank loan, apply through the Small Business Administration’s (SBA) standard 7(a) loan program, or seek franchise financing through an alternative financing company.
Both traditional banks and the SBA have initial drawbacks in the amount of documentation and paperwork that each requires. Additionally, banks charge application fees and the SBA requires both collateral and personal guarantees. Loan applications for both include a borrower information form, extensive personal and business financial histories, resumes, profit and loss statements, and several years of income tax returns.
For the SBA loan, a bank must first approve the application. A loan rejection can send an applicant to another bank to restart the entire process. Either way, months may pass before approved borrowers receive their financing.
This will prove frustrating to franchisees, who know that time is their enemy. Quick access to working capital is imperative to take advantage of opportunities such as a prime location before it is leased by a competitor. Many franchisees are bypassing the traditional financing sources and directly seek a trustworthy alternative financing company.
Alternative Franchise Financing on the Rise
While 2015 statistics are not yet available, FRANdata, the franchise industry forecaster, projected that alternative financing would provide a 4% market share of the estimated $30.1 billion franchises had been expected to borrow during fiscal year 2015. While that percentage may seem small, consider that it amounts to $1.2 billion in financing.
As a trusted alternative financing company, National Business Capital’s goal is to establish strong financial relationships with our clients. We strive to assist them obtain the financing they require to ensure that their franchise businesses continue to thrive. If you have questions about franchise financing, please give our Business Consultants a call at (888) 888-9124 for a confidential business review.
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