Though its a little more complicated for their 7(a) loan program

“Interest rates may be fixed or variable. Fixed rate loans of $50,000 or more must not exceed Prime Plus 2.25 percent if the maturity is less than 7 years, and Prime Plus 2.75 percent if the maturity is 7 years or more.

For loans between $25,000 and $50.000, maximum rates must not exceed Prime Plus 3.25 percent if the maturity is less than 7 years, and Prime Plus 3.75 percent if the maturity is 7 years or more.

For loans of $25,000 or less, the maximum interest rate must not exceed Prime Plus 4.25 percent if the maturity is less than 7 years, and Prime Plus 4.75 percent, if the maturity is 7 years or more.”

SBA Franchise Loan:

So you’re thinking of buying a franchise. As an intelligent and driven entrepreneur you realize that although the risk of starting a business is much greater than buying into a franchise you know you may need additional funding, whether it be from personal funding from the franchisor, or perhaps a Franchise loan from a commercial lending company, or financing from of the franchisor’s businesses.

Another route, if the franchisor offers to help, is to get a loan from a bank. If you do this you should see if you are eligible for a SBA guaranteed loan. The first thing that you need to do is check with the bank and the SBA concerning your eligibility. Once you confirmed your eligibility do what you can to get this particular franchise registered with the SBA registry of franchises, assuming it wasn’t already on it.  Once it is, your application for a franchise loan guaranty you should be able to get your money in no time.

Well why should you consider an SBA loan: well the SBA doesn’t actually loan directly instead guaranteeing 75% the loan for the bank or lender allowing less risk on their part which means you can ask for more money up to 2,000,000 dollars! All you have to do is in your application is show the SBA your integrity, responsibility, character, and financial record, and plan to repay the money. Even good collateral isn’t always needed!

The SBA loans will help you move past obstacles that were in the way of your success getting into the franchise.

Collateral:
If you use collateral as part of getting a loan for your business then you are getting what is called a “secure business loan”,   you would need to include how much equity  your business has, how much money does company have taken out in borrowed funds, and how much money does your company have available in cash.  If you don’t want to do this, then go for an unsecured business loan or a Unsecured Business Line of Credit!

When you start to look for business funding options, it’s important to go to a bank first. Lenders from banks and other financial institutions take into consideration a few key factors before extending a business loan. These include how much money you already have to invest in your business. If the answer is none, it’s likely that you won’t have much collateral to work with to secure your loan. Lenders will look at your credit history for indications of creditworthiness and the potential for your loan amount. If this is less than a certain amount, you won’t be eligible for a bank loan. Banks also look for your potential as a franchise business owner; this can include qualifications as a manager, previous business owner, or a pattern of strong leadership and managerial skills from other jobs.

If the bank turns you down for your franchise loan because of bad credit, the next step is to work with the Small Business Administration. Lenders here will work with borrowers who may have poor credit or bad credit, and work with different criteria than banks. SBA loans look for franchise businesses that have less than $13.5 million in sales, and they must be for profit. The SBA is looking for a strong business plan, so it’s essential that you have this information readily available and include all revenue projections and funding options. Prospective franchisees should have some working capital or collateral to invest in a part of their loan; this can sometimes take precedence over poor credit history in the eyes of the SBA. A strong work history or experience in the industry of your franchise is another factor for success in qualifying you for a franchise loan, so it’s important to include a resume or samples of work history as part of your application.

If the SBA does not extend a loan, there are still other options if you have bad credit. You can find an angel investor to cover the costs of your business, work with a business partner to obtain a loan, or submit a grant proposal in your local community. Even with bad credit, many people have had success in obtaining a franchise loan for their new business.

The above statistics indicates that franchise owners are having a difficult time getting their ventures to succeed in these difficult financial times.  Everyone certainly understands the difficulty in getting a new small business to succeed and meet their financial obligations.

So, what can franchise business owners learn from the above statistics regarding recent SBA loan default rates? What are the factors that seemingly contribute toward the high default rates?  Well, a review of the statistics seems to reveal several basic factors that affect this.

First, those franchises that focused on serving the affluent customers have a more difficult time during these tough financial conditions.  As families face lower income levels, they begin to cut back on those good and services offered by franchise businesses that can be considered luxuries.  Cleaning services, laundry services and lawn services may fall into those categories.

Secondly franchises that are in an already crowded market face the prospect of stiff competition and as number of customers for that good or service fall even slightly, marginal businesses suffer immediate consequences.  As an example there are a lot of pizza restaurants both independent and franchise operators.  As families conserve cash and start to cook at home more often, they cut back on ordering pizza.  This affects all smaller and newer operators and those with lower financial capital. 

Third factor that affect franchise businesses is the business model of the franchise business.  It is crucial to have a solid business model that works even in a difficult financial environment.  If the business model is marginal to begin with and depends a lot on the operator’s talent and experience, then this environment will put you to the test.  As an example opening fruit juice and cold drink stores in colder climates in winter does not make sense.

So what should a franchisor do in this environment?  It is crucial for franchisors to maintain their current base of operators and expand their base cautiously.  Nothing is more valuable to a franchisor than a demonstrable track record of success as evidenced by their customer base.  A large number of failures and defaults does not inspire confidence in a potential franchise opportunity seeker.  There are several things the franchisor can and should do.  Speak to your customer base regularly and poll them on their market situations.  Provide advise and counseling where appropriate and direct them to financial resources when needed.  When selecting new franchise owners, have a higher standard, for financial and capital requirements, so they can withstand the market forces longer.  Make sure to provide adequate training in operations so they are more successful in operating their business. 

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Article Source:http://www.articlesbase.com/franchise-articles/financial-challenges-facing-franchise-businesses-1618205.html