FAQ

Do you have questions? We have answers. View some of our most commonly asked questions below. 

SBA 7(A) (Small Business Administration) is the most popular, common loan program and is a great option on resales over $150K, if there is 3 years cash flow/profit history and is less than 4x earnings, meaning whatever the cash flow/profit is – the business cannot sell for more that 4x that #.  SBA, if you go to the right SBA bank or utilize a franchise funding specialist & consultant, will provide a 10 year loan, include working capital, no pre-payment penalties and has a rate that cannot go higher than 2 3/4 % over prime ( or a 7 1/2 % total rate).  SBA is good because even if personal and business collateral is low or there is none, SBA Banks (again, if go to the right one), will approve and fund your acquisition.  An experienced Franchise Funding Specialist, like Diamond Financial (aka FranchiseLenders) will maximize your chances of approval and make the entire loan process faster and easier.  Not all SBA Banks are the same. Most are still overall conservative and don’t want to finance loans sizes under $350K, so working with a specialist is important. 

  1. Rolling over Retirement funds (401K or IRA) and paying no taxes or penalties.  It must be retirement money from a prior job or company you were at.
  2. Using home equity money because of a low rate and if you have plenty of equity is an option. 
  3. A seller holding a Promissory note (also know as a seller note) combined with some cash down payment.  This is popular on Resales under $250K and if the business for sale financials are poor or do not support a bank loan, like SBA.  
  4. On under $250K or $150K size Resales, if a franchise investor/borrower has a 700 or higher personal FICO Score, getting an Unsecured Business Line of Credit (unsecured meaning no personal or business collateral needed for approval) can be another strategic option.  Unsecured lines are more expensive than SBA, but is faster and easier, takes ½ the time to fund.  Sometimes a combination of some of these funding options must be done to meet your financing goals.  
  5. On larger acquisition/resales over $1 million there are lenders that will provide conventional (non-SBA) loans, usually faster with lower rate, but shorter term.
  6. An option to fund an acquisition is a securities-based credit line (or portfolio loan) which offers lower rate, high LTV’s and funding in approx. 2 weeks.  It’s an asset-based loan – leveraging non-retirement publicly traded securities.
  1. Monitor your personal FICO Credit Score with a service online (CreditKarma or AnnualCreditReport.com) and only apply for a loan once you are over 700.  If any derogatories, get them resolved or explained.
  2. Pay down or off any credit card debt.  The less overall debt and lower personal monthly expenses, the better your chances when your income to debt ratios are more favorable.
  3. Make sure you can inject at least 10 – 20% on an acquisition and 25% on a start-up franchise investment.  It’s also important to have adequate cash reserve money after your down payment.  A retirement rollover plan can increase your liquid cash balance and reserve which will put you in better position for approval.
  4. Have a detailed professional resume done highlighting all of your experiences and accomplishments, which will be needed for the business plan section which a lender will need to feel confident on how your past work experience will help you to manage your new business.
  5. Consider a partner or limited partner or co-signer.  This always creates less risk to a Bank who now sees that your loan “package” has more good credit history, experience and financial strength.
  6. Include a promissory note (seller note) as part of your acquisition terms.  This will increase your chance of approval and provide less risk to lender (with lower loan size) plus can lower your down payment.
  7. Make sure the franchise you are buying has 5+ years in business, 3 years minimum of cash flow history, is priced right and is located in an area that has Strong growth potential.
  8. Avoid going to the Bank directly who will have minimal options and a SBA Loan program that will have tough requirements.  Go to a Franchise Funding Specialist (like Diamond Financial/FranchiseLenders) who work closely with only the most aggressive cash flow, pro-franchise SBA Banks and Lenders.  Diamond Financial knows how to properly package your SBA Loan to maximize your chances of approval.
  1. Monitor your personal FICO Credit Score with a service online (CreditKarma or AnnualCreditReport.com) and only apply for a loan once you are over 700.  If any derogatories, get them resolved or explained.
  2. Pay down or off any credit card debt.  The less overall debt and lower personal monthly expenses, the better your chances when your income to debt ratios are more favorable.
  3. Make sure you can inject at least 10 – 20% on an acquisition and 25% on a start-up franchise investment.  It’s also important to have adequate cash reserve money after your down payment.  A retirement rollover plan can increase your liquid cash balance and reserve which will put you in better position for approval.
  4. Have a detailed professional resume done highlighting all of your experiences and accomplishments, which will be needed for the business plan section which a lender will need to feel confident on how your past work experience will help you to manage your new business.
  5. Consider a partner or limited partner or co-signer.  This always creates less risk to a Bank who now sees that your loan “package” has more good credit history, experience and financial strength.
  6. Include a promissory note (seller note) as part of your acquisition terms.  This will increase your chance of approval and provide less risk to lender (with lower loan size) plus can lower your down payment.
  7. Make sure the franchise you are buying has 5+ years in business, 3 years minimum of cash flow history, is priced right and is located in an area that has Strong growth potential.
  8. Avoid going to the Bank directly who will have minimal options and a SBA Loan program that will have tough requirements.  Go to a Franchise Funding Specialist (like Diamond Financial/FranchiseLenders) who work closely with only the most aggressive cash flow, pro-franchise SBA Banks and Lenders.  Diamond Financial knows how to properly package your SBA Loan to maximize your chances of approval.

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