We’ve all heard the buzz. Google Alerts and LinkedIn feeds are full of headlines about the U.S. Small Business Association (SBA) doing away with the Franchise Directory. What does this mean for franchisors looking to grow their brands and entrepreneurs who need SBA franchise loans to help them become business owners? Good news, Chicken Little (and the franchising world), the sky is not falling!
Entrepreneurs will always need loans to open or scale businesses, and banks will continue to lend. According to a report by the Federal Reserve, 43% of lenders apply for loans at large banks and another 43% apply at small (local/community) banks. Large banks are approving 58% of the loan requests, and small banks are approving 67%. Fortunately, there are some things you can do to increase the likelihood that your loan gets approved.
How to Improve Your Chances of Getting an SBA Franchise Loan
- Be prepared. A crucial step when investigating whether a franchise brand is right for you is to validate with current franchisees in the system. Ask franchisees if their start-up costs are in line with what they learned from the FDD and what the corporate team is telling you in the discovery process. Talk to franchisees about what it takes to break even and how long it took for them to get there. Check out FBR’s Franchise Academy for more details on how to evaluate franchises.
- Have a strong business plan. A well-developed business plan should include your goals, strategies, and financial projections. Use the plan to demonstrate that you have a clear understanding of your local market, competition, market share opportunity, and profitability potential. There are several free business plan templates available from sources like the SBA, Canva, and Hubspot.
- Compare lenders. All loans are not equal, and it’s not just about the rate and fees. Dig into the loan terms and repayment options. What additional services or resources do they offer that franchisees need…education materials, networking opportunities, or business advisory services? Make sure to check the lender’s reputation and customer service through online reviews, and always get multiple quotes to help you negotiate the terms and rates they’re offering.
- Educate lenders about franchising. Franchising is a model designed to deliver the same model and results, regardless of market. Share details of the franchisor’s history, success rate, and support offered to demonstrate how the franchisor sets you up for success before the doors even open.
- Deliver a compelling package. The more you can include in your package for the bank to review, the more likely they will feel risks are mitigated and approve the loan. The franchise’s FDD and bank credit report tell the story with numbers, but what about the people story? Include an independent third-party report showing how franchisees rate the brand. Details about the financial opportunity, training and support from the franchisor, and strength of the leadership add credibility to the financial documents. Franchisors that are invested in the success of their franchisees should be able to provide you with summary reports of their franchisee satisfaction data. (Here’s a sample of the Satisfaction Summary Reports Franchise Business Review provides to franchisors.)
- Get in touch with a lender that specializes in franchising. FBR partners with a trusted financing partner that can pre-qualify you for an unsecured loan in minutes. They are experts in franchising and offer complimentary consultations. Click here to schedule an appointment.
If you need a loan to open or expand your franchise business, use all the tools you have to reinforce unit profitability and current franchisee satisfaction—the most important indicators of future success.
If you’re still searching for the right franchise to invest in, you can see the list of the Top 200 Franchise Opportunities based on owner satisfaction. Many of them have summary reports available publicly that you can access online from our website.
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