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Franchise Prospector » Money & Financing
SBA Loans Can Be a Great Opportunity
Money & Financing
To many entrepreneurs who are interested in making it big by investing in a franchise, the path to success may appear more like a long and uphill road winding for miles into the future. Fortunately, however, potential franchisees are not alone in their quest for independence and success. For over 50 years, in fact, the government has provided active assistance to small businesses, including franchises, in order to promote a healthy and thriving entrepreneurial economy in the United States. Many franchisees have found the help - especially that which comes in the form of financial assistance - to be absolutely necessary in getting their businesses up and running.
The principal governmental organization in charge of financial assistance and consultation is the Small Business Administration (SBA). While it is a provider of consultation as well as financial assistance, many find that the guarantees on loans that it provides are one of its best features. While extremely helpful for franchisees these loans are available to individuals who are expanding the number of their operations as well as those who are starting out for the first time.
Types of SBA Loans
In order to find out more about how an SBA loan can be obtained, it is important to know what, exactly, the available SBA loans can be used for. First of all, there are two offered; the 7(a) and the 504. Of these, only the 504 (Certified Development Company loan) is good for the purpose of acquiring property. It can also go toward the projects of franchisees and business owners who need to make improvements on buildings that already exist, as well as street improvements, grading, parking lots, landscaping and utilities. In addition, franchisees can use the proceeds from this loan for constructing new facilities, renovating, modernizing, converting existing facilities or purchasing long term equipment and machinery. Borrowers will find, however, that the 504 does not cover working inventory or capital or any type of refinancing or dept repayments.
Often franchisees need to lease or purchase the property where they intend to do business. By taking advantage of the 504 loan, many find that they have gained access to proceeds a lot more easily than they could have as standard borrowers.
The other important type of loan offered through the SBA is the 7(a). Essentially, this can be used for everything else a franchise requires that is not included in the 504 loan. Borrowers can use proceeds from the 7(a) to take care of new construction costs as well as acquiring machinery, equipment, fixtures, furniture, materials and ongoing supplies. The exceptional feature of this loan is that it can be used for the many expenses of starting up that many franchisees might otherwise not be able to cover. Indeed, by financing long term working capital arrangements such as paying off accounts payable and purchasing inventory, as well as short term capital requirements like seasonal financing, contract performance, construction financing and more, the loan will see the franchisee through the most difficult stage of his or her business endeavor.
How to Borrow from the SBA
Fortunately for the prospective franchisee, borrowing through the government does not necessarily have to involve the long lines and bureaucracy often associated with public institutions. Indeed, SBA loans can be carried out through one's own bank. But before pursuing the loan in depth, make sure that the bank being borrowed from is on the SBA's "preferred" list. This will save lots of time in the long run. Why? While preferred banks are able to make crucial decisions about one's credit on their own, banks that do not have the preferred status must send all of the transaction items to the SBA for approval.
For the potential franchisee, it is extremely important that the loan process go quickly and smoothly. In order to make this happen, there are quite a few items that the borrower has to take care of. By expediently checking off this list, the process will be sped up so that the loans go through and one's business can start up sooner, rather than later.
SBA loans are some of the best loans an entrepreneur could hope for. Not only are they easier to obtain than are normal loans, but they provide the necessary guarantees and protections that make many banks much more willing to go ahead with the deal.
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