What is a Franchise?

A franchise is the legal relationship between the franchisor (who is the owner of a trademark, service mark, trade name or advertising symbol) and an individual (franchisee) that desires the right to use those features in a business. The franchise agreement dictates the method for conducting business between the franchisee and franchisor.

In other words, a franchisor owns the right to a name or trademark and sells the right to use, with legal constrictions, that name to a franchisee.

Generally, a franchisee sells the goods or provides services that are supplied by the franchisor at the franchiser’s quality standard levels.

What is a Franchise Loan?

A franchise loan is financing made available by a lender so that the franchisee can acquire a franchise business. Many lenders see less risk in a franchise loan as there is a proven history of performance by the franchise. The loans can take many shapes from private party loans, to bank loans to SBA loans.

Why Buy a Franchise?

There are many reasons to buy a franchise. We have assembled a personal franchise buying checklist for your consideration. Here a few financial advantages for acquiring a franchise:

Learning Curve – Proven Record of Success: A franchise company has created and refined an established method of doing business that works, and that shortens your learning curve. Franchise companies have a blueprint for success and for your franchise fee you can step and acquire their knowledge. Additionally, franchisors are required to provide you with financial and operation information via their required disclosures so you can understand and verify what exactly you are buying.

Arranged Franchise Financing: Franchised business opportunities will sometimes offer business financing available which allows easier time for startups and sometimes at better financing rates.
Real Estate Site Identification: Most franchises will require a physical location for your business. The franchisors can help you find the the right site and they are experienced in negotiating any purchase or lease required.

Construction Assistance & Management: Franchise companies can help you select the right contractors to do your build out, and make sure your layout will work best for you and your customers.

Training Programs: Comprehensive training programs are typically offered by franchise companies as they want you to succeed. These programs are designed to teach you the successful methods to run the franchise.
Brand Recognition: A major advantages of franchising is that the company is building a brand on a regional or national basis that can be instantly recognized by your customers.

Marketing Plans & Strategies: A franchised business has already experimented with advertising and marketing programs and they know what works best. Additionally, a franchisee will benefit from group rate advertising. They will provide you with proven tools to attract and retain customers.

Operational Support & Expertise: Franchisees can benefit by receiving valuable information from the company and other franchisees. This helps when you are confused or have questions as you can always call on experienced people for assistance.

Group Purchasing Power: By aggregating the purchasing needs of the franchisees, a franchise can take advantage of the economies of scale to receive low prices. This applies all aspects including; printing, office supplies, furniture and equipment purchases, inventory, uniforms and just about everything else required to run a successful business.

Risk Avoidance: Mistakes happen and with a franchise, part of what you are buying is the mistakes they have made in the past, and now corrected.

How to Get a SBA Franchise Loan.

You should prepare a business plan, including your loan proposal, and submit it to a local lending institution. If the lender is unable to approve your franchise loan, you may request that your application be submitted, by the lender, to the Small Business Administration (SBA). Lenders like the Franchise SBA loan because the SBA can guarantee up to 80% of a small business loan. The lender will then forward your loan application and a credit analysis to the SBA District Office. Upon SBA approval, the lending institution closes the loan and disburses the funds to the franchisee.

While poor management is cited most frequently as the reason businesses fail, underfunding financing is a close second. Whether you’re starting a franchise or expanding one, you need immediately ready capital. Please recognize that it is not enough to simply have sufficient financing, you also must have a business knowledge and planning skills to manage the franchise, plus personal perseverance.