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October 14, 2010

How to Qualify for Franchise Loans After Bank’s Rejection


It is only possible to obtain a SBA loan after being rejected for a credit from a bank. The same bank or another financial institution can submit an application to the SBA for qualification. For more information, visit BuscaTuFranquicia.com.


Borrowing money for a franchise loan increase considerably the difficulty if you have a bankruptcy and many charge offs, judgments or tax liens. In this case it is nearly but not completely impossible to get a franchise loan. Financial Institutions will more likely turn you down because they have raised the bar for credit. Yet there is hope for those who have only had a few late payments or delinquencies. A few negative points on your credit history that gives a less than perfect record will not necessarily be rejected by the lender. It is suggested that you try to qualify anyway and the results could be positive.

The possibilities are still open. In the first place the problem is that no matter how perfect your credit is banks are still not lending for franchise loans. Here are the guidelines banks are using to qualify borrowers:

1) How much cash can the borrower put down for the business?
2) What type of collateral can the borrower come up with to secure the loan?
3) What is the borrower's credit history?
4) What kind of management background and experience does he or she have in the area of the prospective franchisee business?

There is a group called the Small Business Administration (SBA) that is has been sanctioned and funded by the U.S. government and is run by volunteers who are retired business executives who know how to start and run a business. Having bad credit means the best possible way to get around the problem of the lack of good credit is to apply through their loan program. The SBA has access to government guarantees on a percentage of SBA loans so it lessens the chance of default and lowers the risk for the lender.

It is only possible to obtain a SBA loan after being rejected for a credit from a bank. The same bank or another financial institution can submit an application to the SBA for qualification. During this process the SBA analyzes franchise business the future one under the following guidelines:

Franchise Enterprise: Size of the business must be small (no larger than $ 13.5 million in sales from retail and wholesale services). It must be located on U.S. shores or a U.S. territory and be a for profit operation. The two main things they are looking for is financial strength and stability. When marketing of the franchise a business plan must have been written. The business will be open to any minorities.

Prospective Franchise Owners; The SBA will not consider any franchise application where the borrower does not have any of their own money to invest in the franchise. As well, the SBA accepts the applicant who has significant collateral to cover all or part of the loan amount. Background is very important as the SBA will evaluate that, the borrower's experience as a manager and credit history. They not tend to approve loans to students fresh out of school without any work experience. The more real life business experience the applicant has the better.

The SBA will allow borrowers in with the Micro Loan Program. The first loan amount will be about $10,000 dollars or so but can be higher. Depending on the franchise it can be up to $35,000. There are more than 170 non profit community groups that oversee the program. It is important that the business plan works for the loan period is no longer than 6 years. The US Treasury Department will set the interest rate which could be variable or it could be much higher than the norm on a business loan from a bank. For many years there have been local non profit community development organizations and they themselves have backers that are interested in funding community revival and renovation. This group is called the “Community Development Corporation.” They are potential lenders to small businesses especially of the business will create jobs.

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