Financing a Franchise

Posted on April 11, 2011 by David Gass No Comments

Getting financing to purchase a franchise back in the 90′s was as simple as a quick view of the franchisee’s credit score with several options for lenders. If the franchisee had good credit and a little skin in the game they would get funded.

These days times have changed. Although there is still 80% – 100% financing available for franchisee’s it’s not the norm. Right now lenders are looking to loan 30% – 50% in most cases. Which means franchisees need to bring money to the party. If they want to buy a franchise they have to have their own money as well.

One important distinction between the 90′s and today is that lenders don’t just rely on the personal credit of the franchisee. Now they are looking very closely at the franchise itself. They want to know what the failure rates are on the franchises and if there is enough history with successful ones. Anything with a failure rate over 15% is not likely going to get the backing of many franchise lenders.

Lending institutions in the past that we’re powerhouses are just not doing the same volume of lending. Most are still using SBA loans and companies like CIT once the number one SBA lender is now ranked 28th; Bank of America is not a 7(a) lender, choosing to do a limited number of 504 loans and Banco Popular, who in the past was one of the nations largest lenders is now only doing a few regional loans.

If you are looking for a franchise to purchase and need funding to get it, make sure #1 you have a good personal credit score and #2 the franchise you pick has a failure rate below 15%. This means the franchisor needs to have been in business long enough to have a good track record.