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Finding Franchise Financing
Individuals or groups looking to buy a franchise rarely have the kind of cash it takes to pay for everything up front.  When you take into account the initial franchise fee – anywhere from $25,000 to $50,000, or more – plus money for equipment, inventory, supplies, advertising, and possibly even real estate, you are easily talking about anything from a low- to mid-six-figure number up to a million bucks, or more.  That’s a pretty expensive neighborhood.  As a result, you will be looking for a franchise loan to accommodate at least part of that figure, and most likely a large chunk of it.  Franchise loans are tough enough to secure in relatively good times, but what about during a recession?  One report estimated that 2009 could see as much as a 40 percent reduction in franchise financing, due to the current economy.  Is this bad news for the prospective entrepreneur?  Not necessarily.

Franchising in Tough Economic Times
The current situation may be difficult, but it’s by no means unique.  We have been through several such downturns over the past few decades, and franchising has continued to grow.  Thanks to the economic stimulus plan, known formally as the American Recovery and Reinvestment Act, a number of actions have been taken to help business people find operating capital – and this can translate into franchise loans for you.  For example, the U.S. Small Business Administration (SBA) offers federal loan guarantees to banks and other lending institutions.  The purpose here is to reduce the risk of a franchise loan that may go bad.  Previously the SBA would only guarantee a maximum of 75 percent of the loan, but one of the terms of the Stimulus Plan allows them to raise that number to 90 percent.  A stronger guarantee to a bank means a better opportunity to secure a franchise business loan.  Another feature of this plan provides extended payback terms – lower payments early in the process, allowing a franchise to find its market, as well as a longer period in which the franchise loan must be paid back.

Franchise Loans From Franchisors
It may be too obvious to state, but if people are not able to find a franchise loan, then companies cannot sell their franchises.  As a result, a number of franchisors are providing insider financing where they never did before.  While most of these companies will not offer enough financing to include the entire cost of buying and opening a business, they can offer some very attractive terms when it comes to some elements of the startup – special financing that can cover equipment, remodeling a retail space, and stocking inventory.  Some firms have taken the unprecedented step of discounting or even waiving the franchise fee, so you know they’re serious about helping people buy into their system.

More On SBA Loans
In order to qualify for a loan guaranteed by the SBA, you first must have been turned down for a conventional loan.  Considering how tight money is today, that is not as unlikely as it used to be, even for people with good credit.  There are a number of qualifying elements to obtaining a franchise loan in this manner.  First, the business needs to be “small,” meaning that it cannot expect to make more than $13.5 million in annual sales.  Second, the business must be located within the United States or its territories.  Third, you will need some cash on hand to qualify for SBA franchise financing.  In addition to all this, you can expect the SBA to closely examine your credit history and your business plan.  If you have poor credit, however, do not despair.  Through the SBA’s Microloan Program, franchise loans ranging from $10,000 to as high as $35,000 are available through this program that is administered by a nationwide system of non-profit, community-based organizations.  While that amount of money will not put you into a high profile franchise, there are a number of work-from-home opportunities that fit nicely within this price range.

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