Franchise Business Loans: Entering the Franchise Business Solution

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Franchise Business Loans: Entering the Franchise Business Solution

By: Edwin Linares

They say that investing in a franchise business offers the least risk with the best chance of generating big profits in a shorter period of time.

This is mainly because the investor in a franchise business will be banking on an already established name and brand as well as employing a business set up that has already been tried and tested as a profit-generating operation. In other words, several success stories can easily be verified based on the franchise owner's company-owned operations or their other franchise-buyer's performance.

There are basically two types of franchise. The first is the product or trade name franchising. This is the simple acquisition of the franchise name and other trademarks related to the franchise. In this type, the purchaser is still left a freehand to maneuver the business in any manner he likes within boundaries in the name-use guideline. Operational procedures and business strategies are not included in the deal.

The second type is a more complete coverage of the franchise. It is referred to as the Business Format Franchising. This type of franchise not only sells the name and related trademarks but also provides assistance from site selection, employee and employer training, product procurement, marketing strategies, as well as finance sourcing.

Because of the popularity of franchise business nowadays, a new financial product called franchise business loan was developed.

Regardless of the type of franchise one is interested to engage in, a commercial lending institution may consider eligibility for a Small Business Administration (SBA) guaranty. Personal worth and property, along with a viable business plan are taken into consideration to determine the risk factor in allowing the loan. This added SBA guaranty is requested by commercial banks when the borrower's profile presents a significantly large risk variable, especially if the borrower represents a small business.

About 75% of loans up to $2,000,000 can be guaranteed by the Small Business Administration. Needless to say, the requested loan becomes more attractive to the lending bank compared to the profile presented that considers personal credit profile and strategic business plans alone. Why? Because, in the instance that the borrower is not able to settle payment requirements on time, the bank can then turn to the SBA for settlement.

So, what is this Small Business Administration entity? First of all, the SBA is not a money-lender. SBA only assures a portion of the loan in order to assist small business to gain trust and approval of loans from banks.

This means, if the borrower fails to pay, the most that the bank can lose is the portion that the SBA does not guaranty. So, how does SBA do it? Once approved for an SBA loan, personal guarantees of the principals of the business, fixtures and equipment, business furniture and even the principal's personal homes will be taken as SBA security. If the borrower fails to repay the loan, these assets will serve as source pool to gain back the amount loaned. The SBA pays back to the bank under the guaranty.

So, before you decide to leave the corporate life and jump into the world of franchising, consider the funding sources carefully.

Article Source: http://www.find-investment-advice.com

E. Linares is Chief Visionary Architect at Commercial Magnet:: the new face of the online lending marketplace where borrowers and lenders connect; 6 points of service to help build your wealth! Commercial Magnet is the entrepreneurial platform that takes business owners from start to funding. Find out how a Business Loan or Working Capital can help fuel your business at www.commercialmagnet.com.

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