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Are you considering purchasing a franchise with PJ's Coffee? If so, you might be wondering about the process for obtaining SBA 7a financing. In this article, we will delve into the steps involved in securing SBA 7a financing for a PJ's Coffee franchise, covering everything from checking the SBA directory to evaluating your creditworthiness and equity requirements.
Checking the SBA Directory
The first step in obtaining SBA 7a financing for a PJ's Coffee franchise is to check the SBA directory. This directory contains a list of approved franchises, and it's essential to ensure that PJ's Coffee is on that list. By confirming PJ's Coffee's presence in the directory, you can proceed with confidence, knowing that the franchise is eligible for SBA financing.
Total Project Cost and Financing
Once PJ's Coffee is confirmed as an approved franchise, the next consideration is the total project cost. The total startup costs for a PJ's Coffee franchise typically range from $406,000 to $1,024,000, depending on the location. However, this cost can vary based on multiple factors.
After assessing the total project cost, banks evaluate your creditworthiness, borrowing ability, and equity. Most banks require a 15 to 20 percent equity injection for franchise startups. However, some banks may accept a lower equity injection, such as 10 or 19 percent. It's important to note that each bank has its own requirements and overlays, which depend on the specific franchise concept and the number of units. Established franchise concepts like PJ's Coffee, with over 100 units, are often viewed more favorably by banks.
Building a Pro Forma and Due Diligence
To proceed with the financing process, you will need to build a pro forma based on PJ's Coffee's business plan template and tools. This pro forma should consider factors such as location, square footage, and traffic count. Additionally, conducting due diligence is crucial. Speak with other franchise owners within the PJ's Coffee concept, participate in a discovery day, and validate the franchise by visiting other franchisees at their stores. This thorough research will provide valuable insights to support your financing application.
Total Sources and Uses
Once you have gathered all the necessary information and completed your due diligence, you can calculate your total sources and uses. This includes franchise fees, inventory, working capital, startup costs, equipment, and other expenses. It's important to allocate sufficient working capital to cover the initial months of employee salaries. The total project cost should also factor in SBA fees. Typically, the equity injection requirement ranges from 10 to 20 percent, depending on the bank and your strength as a borrower.
Strengthening Your Position as a Borrower
Since collateral shortfall is a common consideration in SBA financing, strengthening your position as a borrower is crucial. Additional collateral may be required, such as a primary residence, secondary residence, or investment property. Having substantial equity in these properties can strengthen your financing application. Other factors that bolster your position include a high credit score, maintaining your W-2 job in the short term, and demonstrating a strong income. Moreover, the reputation and longevity of the franchise concept play a role in the bank's evaluation.
Conclusion
Obtaining SBA 7a financing for a PJ's Coffee franchise involves several key steps. Begin by confirming PJ's Coffee's presence in the SBA directory, and then carefully assess the total project cost. Build a comprehensive pro forma, conduct due diligence, and calculate your total sources and uses. Strengthening your position as a borrower through collateral and demonstrating financial stability can increase your chances of securing the financing you need.