For over 20 years in the Franchise Financing industry, a very common question to us has been “will your SBA Banks lend on the Franchise I am interested in?” My response is nearly always, “it depends” and then I proceed to ask the interested franchise investor the following to first pre-qualify them:
- What is the name of the franchise?
- What is the total investment size?
- Do you have a spouse or partner?
- How much liquid cash do you have for down payment?
- What is your FICO Credit Score?
- Do you have any industry experience?
- Have you decided on the Franchise?
- How many total open Franchises (locations) are there!
- When is your goal to open by?
- Have your spoken with other Franchise owners (of this brand) and completed your due diligence?
FranchiseLenders.com specializes in franchise lending for hundreds of franchise brands and over 30 Banks as loan packaging specialists maximizing someone’s chance of approval always trying to get best rate and terms of if someone has a relationship with a local or current bank:
Many times, my final decision whether to pre-qualify someone for a loan may come down to the history and success of a franchise Brand. The bank always feels less loan risk with a higher chance of loan approval if to pre-qualify the Brand, I ask:
- Does the Franchise brand have 50+ open locations (or # of franchisees/owners)?
- The brand has a minimal failure rate, if any?
- Has the brand had any past SBA defaulted loans?
- Does the brand have a well-known reputation?
- Has the brand had minimal, or any past or pending lawsuits?
- Does the brand have a great track record on training programs?
- Lenders are more interested if the loan size is over $300K (for SBA loan requests)
- If it is a food franchise, banks will probably be more comfortable with having some possible food experience.
- Banks will also want to know in detail about your overall area and local market, who the main competitors are, and how your background and experience will help you to be successful with your Franchise Company.
A larger, more well-known and successful franchise system will allow the bank to be more flexible with lower down payment, maybe better interest rates, have lower net worth and require less collateral for loan approval.
We have seen in recent years Lenders being more selective about which brands they will lend to. The bottom line is that you will simply need to be a stronger borrower with (10 – 25%) down payment, higher net worth and collateral needed on newer, less well-known franchises since it is obviously a higher risk loan request to the Bank, but people are getting financed. You just need to know which bank to go to and it helps to have a financing specialist/consultant who knows the industry to guide you through the whole lending process.