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Are you considering purchasing a franchise but hesitant about securing financing through the Small Business Administration (SBA) due to concerns about a lien on your investment properties? In this article, we will explore alternative financing options for franchisees, specifically focusing on juice and smoothie bar franchises. Discover how equipment financing can offer a viable solution without jeopardizing your valuable assets.
The Challenge with SBA Financing
Bev, a prospective franchisee, reached out to us with a query about financing options for her franchise purchase. She expressed her reluctance towards SBA financing, as it could potentially result in a lien on her investment properties. While SBA loans can be beneficial in certain scenarios, they may not be the ideal choice for everyone.
Equipment Financing: The Franchise Niche Solution
For franchises that require a physical location with a build-out, equipment financing can be an excellent alternative. Within the franchise niche, specialized equipment finance companies exist, offering financing for all necessary equipment and build-out expenses. Typically, they can cover up to 25 percent of soft costs, including contractor fees and other related expenses.
Why Equipment Financing?
Choosing equipment financing over SBA financing can protect your equity in rental properties or primary residences. SBA loans require collateral, and if you have substantial equity in your properties, a lien may be placed on them to compensate for any collateral shortfall. This shortfall occurs when the appraised value of the equipment is significantly higher than the value assigned to it for collateral purposes.
To illustrate further, suppose a brand-new piece of equipment is valued at $100,000. However, the lender may only consider it worth 25 percent of that value when evaluating collateral. Conversely, for real estate, lenders typically utilize 85 percent of the stabilized value. The disparity between the equipment's actual value and the assigned collateral value creates a collateral shortfall, which may necessitate additional collateral. Unfortunately, this is an unavoidable aspect of the SBA loan process.
The Benefits of Equipment Financing
Opting for an equipment financing deal offers several advantages. First, it eliminates the need for additional collateral, safeguarding your valuable properties. Second, equipment financing can be tailored to your specific needs, allowing for flexibility and creativity in structuring the deal.
Conclusion
Financing your juice and smoothie bar franchise doesn't have to be a daunting task. By considering alternative options such as equipment financing, you can steer clear of potential challenges associated with SBA financing, including liens on your investment properties. Take the time to explore the available options and consult with professionals who can guide you through the process. Remember, your investment is worth protecting, and choosing the right financing option can set you up for success in the thriving world of franchise ownership.
Are you ready to embark on your franchise journey? Feel free to reach out to us for a personalized consultation and to explore the diverse financing solutions available. Subscribe to our channel for more insightful content and expert advice on all things financing. Here's to your entrepreneurial success!