Podcast: Download (Duration: 7:00 — 9.8MB)
In a recent message to Beau, Olivia expressed her eagerness to delve into the process of franchise financing, particularly with a focus on SBA (Small Business Administration) considerations. This blog post aims to distill the valuable insights shared in the video and provide a comprehensive guide on obtaining an SBA 7a loan for a franchise startup, emphasizing the importance of the Franchise Disclosure Document (FDD).
1. Understanding the Franchise Concept
Before approaching a bank, it's crucial to understand the franchise concept. Experience with the specific franchise can make the loan process smoother. Established franchises with a track record of successful loans tend to be more appealing to banks.
2. Financial Projections and Costs
To secure an SBA 7a loan, meticulous financial planning is essential. Beau recommends preparing 24 to 36 months of projections, emphasizing the need to understand the average project or product cost. This involves breaking down costs, such as service calls and equipment replacements, to substantiate projections.
3. SBA Considerations and Credit Score
SBA-related considerations play a vital role in the loan approval process. Beau highlights that banks, especially smaller ones, often use the SBSS scoring system for loans below 500. Understanding your credit score and addressing any issues is crucial. Additionally, some banks may require the submission of the deal rather than pre-qualifying applicants.
4. Navigating the Loan Approval Process
Beau emphasizes the importance of choosing the right bank, especially one familiar with the franchise. The conversation with the bank should involve discussing the specifics of the franchise, the business model, and the number of units. Reverse engineering the loan approval process based on individual scenarios is key.
5. Equity Injection and Reserves
For a successful franchise startup, having an equity injection of 10-15% and maintaining six to seven months of reserves is recommended. Beau acknowledges that weaker financial situations may require alternative plans. Navigating tight financial situations, such as insufficient funds compared to the franchise cost, requires a strategic approach.
Conclusion: Thrive with Business Ownership Coach
Beau, the driving force behind Business Ownership Coach, provides an invaluable resource for individuals navigating the complex landscape of franchise ownership. His platform offers a proven method, personalized guidance, and a holistic approach to discovering the ideal path to business ownership. With a track record of success stories, Beau and his team are committed to turning dreams into tangible achievements.