When you apply for a franchise loan, the rules will be identical to those for other types of company loans. You must demonstrate your ability to repay the loan, and lenders may determine based on your business or personal credit.
If you apply for an SBA loan, the lender ultimately determines whether or not to approve the loan. You must meet both the SBA’s and the lender’s minimum conditions for approval.
Additionally, to finance your franchise, you must create a suitable loan package or application to acquire SBA funds. This package contains a variety of items that lenders might use to assess the risk of your loan. Your financing package must include the following:
A mission statement. This crucial loan package component may be branded “executive summary” and connected to your business plan or included in a letter to the lender. Include the desired loan amount, the loan purpose, the period, and the collateral, as well as a brief description of the firm and how the loan will benefit it.
Your business strategy. A business plan summarises your firm, includes an organizational chart, identifies your products or services, details your marketing approach, and includes financial estimates. Your financial predictions should include an estimate of the lender’s earnings and expenses, as well as whether the business will generate sufficient cash flow to service the loan. The nonprofit Score Association, an SBA partner that offers free business plan templates and other resources can assist with business plans.
Financial statements for businesses and individuals. Cash flow, income, balance sheet, and personal financial statements should all be included in your loan package. Include a 12-month cash flow statement, and six-month cash flow estimates that are reasonable.
Established enterprises must furnish three years of income and balance statements if available. Startups can provide 12-month income predictions and a balance statement detailing their assets and liabilities for the projected 12-month starting date.
Additionally, the lender will want a personal financial statement to determine the borrower’s net worth and collateral value. Collateral for company loans is frequently required, including commercial and personal assets, such as your home.
In general, to finance your franchise, your income is more essential than your credit score regarding loan acceptance. If you do not anticipate having sufficient profits or reserves to pay expenses once you begin, your loan is unlikely to be authorized.
Lenders may, however, examine your business and personal credit scores when approving a loan to grow or enhance your franchise, as well as when approving startup financing.
The SBA does not require a minimum credit score, but private lenders do. Feldman notes that a personal credit score of less than 650 can act as a deterrent to approval.
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