Helping Clients Nationwide: Financing the Purchase of a Franchise
The difficulties inherent in the current lending environment have been well documented. Nevertheless, a franchisee's access to capital will be an essential element of ensuring franchise sales and the ability of the franchise systems to grow and expand.
More likely than not, the prospective franchise will need access to funds outside of their own cash reserves, and the franchisor should be prepared to facilitate or assist the franchisee in obtaining the necessary capital to get the franchise started. Potential sources to fund the start up of a franchise are:
- Cash reserves of the franchisee
- 401(k) financing
- Friends and family gifts and financing
- Home equity loans
- Equitable investments from partners or shareholders
- Conventional bank financing
- SBA 7(a) loans
Until the recent recession, even start-up franchisors had relatively easy access to SBA funds. Today, the challenges are greater. One means of overcoming this challenge is to secure listing on the SBA Franchise Registry. Being registered means that the SBA has reviewed and approved and secured any required changes to the franchise documents for the purpose of making SBA 7(a) loans. Additionally, if the franchisor has sufficient capital of its own and willing to guaranty the repayment of the SBA loan, a further impediment to granting an SBA loan would be removed. If the franchisor or its affiliates have a strong relationship with a bank already:
- SBA 504 loans if project real estate loans is involved
- Financing by the franchisor, repaid by the franchisee through cash flow
- Franchisor securing a lending facility, with a line of credit made available to franchisees (franchisor is guarantor to the bank of funds)
- Landlord allowances, if leasing is required or expected of the franchisee
Schedule a No-Cost Consultation With an Experienced Kissimmee Attorney About Buying a Franchise
Do you need legal assistance with how to buy a franchise? Contact us to arrange a no-cost initial consultation with an experienced Orlando franchise lawyer today.
From our law offices in Florida, we advise and advocate for clients across the nation.