Can I get a business loan for a franchise?
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UPDATED: May 9, 2013
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Yes, you can get a business loan to start a franchise. However, it is not necessarily an easy or straightforward path.
Rick Bisio, former Director of International Business for Cinnabon, Popeye’s Chicken, Church’s Chicken, and author of The Educated Franchisee, told loans.org that there are different ways to get a business loan.
“How an entrepreneur would choose to finance the business will have a lot to do with the type of business, total investment and financial resources,” said Bisio. He also said that borrowers can obtain business loans guaranteed by the SBA. However, this is a complicated route.
Fortunately, many banks are apt to back franchising entrepreneurs.
“Many franchisors have well developed financing relationships with specific banks,” said Bisio. “This is especially true where a larger investment is needed. The bank is already comfortable with the franchised business model and only has to look at the credit worthiness of the prospective entrepreneur.”
Bisio explained that many franchisors are already SBA pre-approved; a boon for qualified business loan borrowers. Select banks also understand the business model of franchised brands, making it far easier to finance an already recognizable business over a less-than-recognizable startup company.
Despite these benefits, Bisio did mention that like all businesses, franchises will face a challenging first year regardless of the size of their business loan.
“You are trying to build a loyal employee base, raving customers, solid systems while simultaneously sliding down the learning curve,” said Bisio. “The first year is all about building a solid foundation to work from.”
Bisio also noted that there are several benefits to joining a franchise system. Namely, franchisees can benefit from training, support, advertising, and of course branding. However, there are some disadvantages and becoming a franchisee is not for everyone.
“If you are comfortable with the concept of ‘leading while following’ then franchising could be for you,” he said. “If you have to learn by trial and error and don’t like to listen to others, then franchising may not be a good fit.”