Franchise Business Loan

Franchise Business Loans Can Help Your Business

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How a Franchise Business Loan Can Help Your Business?

Starting a franchise is costly, due to a handful of obligatory fees. This makes running a franchise vulnerable to cash flow shortages.

Aside from operational expenses and business investments, a franchise must adhere to the fee guidelines set by the franchisor, which means many franchisees need to turn to a lender for help. A franchise business loan might be the answer to your working capital problems.

To run a franchise, there are often royalty and advertising fees associated that are taken from your weekly or monthly sales and earnings. Sometimes, franchise owners must pay for their employees to undergo training programs that are required by the franchisor. In some cases, franchisors might require local advertising on top of standard advertising fees.

Franchisees must also pay for a franchise fee, before they even own the business. On top of all of these mandatory expenses are other inevitable business expenses, such as new equipment or furniture, and payroll. These costs can easily pile up, making it difficult to earn a profit or save money.

At SMB Compass, we understand the challenges of running a franchise. That is why we’re committed to working with you to find the right financing product to set your franchise up for success.

Best Ways to Use a Franchise Business Loan

Running a business is hard, but if you have a reputable funding partner that believes in your potential, you might have a chance for success. Just like any other business, franchises often need the help of extra working capital in order to maintain business operations. If you own a franchise, a franchise business loan might be perfect for you.

Here are some of the ways you can use the funds from a franchise business loan:

Franchise Fee Payment

Most businesses charge an upfront fee before you can open a franchise. The amount of the fee varies depending on the type of business, but the franchise fee can often be tens of thousands of dollars and is usually nonrefundable. For example, Jamba Juice charges a franchise fee of $25,000 per store, and Cruise Planners charges $10,995.

Royalty and Marketing Fees

Other than the franchise fees, franchisors often also collect royalty and marketing fees. These fees are usually a percentage of the franchisee’s sales, and the amount varies by company. For instance, a Subway franchise pays about 8% per week of sales in royalties, along with a 4.5% per week fee for advertising.

Additional Working Capital

Most businesses apply for a loan to increase their working capital. Seasonal sales fluctuations, cash flow problems, and business expansion are just a few of the many reasons why franchises apply for a business loan. You might not know how much money you need, but as your business grows, you’ll definitely need extra working capital to run your franchise.

Inventory

If you are starting a retail franchise, you’ll need to stock up on inventory. Especially if you are opening a retail franchise, or any other franchise that sells things, you need to purchase the products to sell them. While every franchise business is different, franchisees are usually required to buy around $20,000 to $150,000 worth of inventory to get started.

How Long Does Franchise Financing Take?

SMB Compass offers quick approval for your franchise business loan. Our company has provided more than $160,000,000 to small businesses all over the country. We have financial advisors on hand, ready to discuss your needs and find the right loan product to fit them.

We offer fast and flexible funding. In four easy steps, your business will receive the funds you need:

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Apply for a franchise business loan online

Our simple online application lets you fill out and submit your request for funding. The process is pretty simple, but if you need help along the way, you can contact us via phone, chat, or email.

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A friendly 5 to 10-minute introduction

The next step is an introductory conversation with one of our account executives. We will go over your needs and begin to discuss the different options available.

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Documentation and underwriting

Once you make a decision and reach an agreement, we’ll provide closing documents to review the terms. We’ll also answer any final questions you might have.

Approval and funding in less than 24 hours

When your loan has been approved, we immediately send the funds to your business bank account within 24 hours.

Best Types of Loan Programs for Franchise Business Loans

SMB Compass offers different types of financing options for your franchise business needs. To ensure that your business gets nothing but the best, our trusted financial advisors will help you find the right loan to fit your business’ specific needs and goals.

Here are the most common types of financing products for franchises:

SBA 7(a) Loans

The Small Business Administration (SBA) incentivizes lenders to offer loans to small businesses by guaranteeing a percentage of the funds to the lender immediately. That means that, compared to bank loans, an SBA loan is more accessible for small business owners.

This type of loan often offers more attractive terms compared to traditional loans, but before you can qualify for an SBA loan, the Small Business Administration has to approve your franchise and list it on the Franchise Directory. Otherwise, you won’t be able to qualify for an SBA loan. To get listed on the Franchise Directory, the franchisor must submit their Franchise Disclosure Document (FDD) to the Small Business Administration for review.

Business Line of Credit

Similar to a credit card, for a line of credit, lenders will determine a maximum credit line, which you can withdraw funds from whenever you need to. There are no interest charges until the funds are withdrawn, and you only have to pay for the money you’ve used.

Lenders determine the terms and interest rate of the line of credit based on three factors: personal credit, business credit, and cash flow. Once you pay toward your amount owed, your amount available goes back up.

Multi-Year Term Loan

A multi-year term loan is a term loan that has a repayment schedule of two to five years. This type of loan charges low monthly payments and provides sufficient cash flow for daily business operations. You must have a strong business credit, good historical cash flow, and good personal credit in order to qualify.

Bridge Loan

If you’re looking for a short-term loan to fund immediate financing needs, another type of lending product to consider is a bridge loan. This type of loan enables you to seize new business opportunities, fill in cash flow gaps, and pay for unexpected businesses expenses. Instead of using your personal savings or passing on once-in-a-lifetime business opportunities, bridge loans provide you with the funds you need ASAP.

Best Types of Loan Programs for Hotel Business Loans

SMB Compass offers different types of financing options for your hotel business needs. We have financial experts on hand, ready to help answer any question to make sure you find a loan product that fits your needs.

Here are the most common types of financing products for hotels:

SBA 7(a) Loans

The Small Business Administration (SBA) gives incentive for lenders to offer loans to small businesses by guaranteeing a percentage of the funds immediately. This makes SBA loans ideal for small businesses.

The SBA 7(a) loan is also ideal for hotel financing because it has low-interest rates, long repayment terms (10 to 25 years), and you can borrow up to $5,000,000. The SBA 7(a) loan is flexible, and you can use it to fund any hotel financing need, such as purchasing commercial real estate, construction, renovations, equipment purchasing, additional working capital, and more.

Asset-Based Loans

If your business doesn’t have enough revenue or cash flow to qualify for other forms of business financing, you might want to look into asset-based loans. Asset-based loans are ideal for businesses with a high value in assets or on their balance sheets.

Businesses can use their assets as collateral to secure financing. Most lenders consider the following as collateral for an asset-based loan:

  • Accounts Receivable
  • Inventory
  • Equipment
  • Intellectual Property
  • Real Estate
  • Marketable Securities

Merchant Cash Advance

A merchant cash advance is a good option if your hotel business needs working capital ASAP, or if you don’t have good credit. Technically, a merchant cash advance is not a loan; as the name suggests, it’s more of a cash advance.

With a merchant cash advance, lenders provide you with the funds you need in exchange for a percentage of your daily credit/debit card transactions. While a merchant cash advance isn’t a loan, it still offers similar benefits. It also has a higher approval rate than other traditional loan programs.

Equipment Financing

Buying new equipment for your hotel is expensive. Equipment financing provides you with the money you need to purchase new beds, washers and dryers, vehicles, or any other equipment your hotel needs. Typically there are two equipment financing options: equipment leasing and equipment loans.