A franchise can be the ideal opportunity for anyone interested in becoming an entrepreneur – you can take advantage of the flexibility and independence of being a business owner and the support and infrastructure of a large corporation.
Along with its many rewards, investing in a franchise is a capital-intensive venture. At My Eyelab, we partner with BoeFly, a technology marketplace for small businesses, to help franchise owners efficiently source financing options. At the same time, My Eyelab utilizes BoeFly to conduct diligence reports on first-time franchise owners and provide franchisees with financing support and guidance.
There are numerous steps in the process that prospective owners should follow to ensure they can successfully fund their franchise business. Here’s a clear look at the funding process:
Steps to Fund a Franchise
While the path to financing a franchise may be narrow, the opportunities available work in favor of many small business owners. Small Business Administration (SBA) loans are the ideal choice for most first-time franchise owners. SBA loans are partially backed by the U.S. Small Business Administration and funded by their intermediary lending partners. It’s a federally operated program, and it offers the best interest rates on the market.
However, the question is most typically not if hopeful business owners will get an SBA loan, but rather, where they’ll most efficiently secure the SBA loan from.
“Which bank you move forward with is very important,” said David Bassin, senior director of franchise relations at BoeFly. “If you go with a bank that’s not familiar with SBA or franchise financing, you will often be in trouble.”
Ahead of searching for a bank, small business owners can take a few key steps when in the market for an SBA loan. First, the franchisee must qualify. To be eligible, the franchisee is best served to come to a bank fully prepared.
How to Qualify for an SBA Loan
1. Good Credit
To be in good standing for an SBA loan, a franchisee must have good credit, with a score of 680 or higher. Additionally, they should have clean credit, no significant blemishes or deficiencies, bankruptcies or short sales.
To qualify for an SBA loan, banks will require a minimum equity investment of 15-30% of the loan’s total cost. Thankfully, the “equity injection,” as it’s often referred to, can come from a number of sources such as savings or rolled over retirement funds, to name a few.
Banks are always mindful of a borrower’s collateral. In fact, SBA lenders are required to pledge all available assets up to the loan amount and they’ll first start with business assets. For most franchisees, business assets alone will be insufficient and therefore banks will look at assets outside of the business such as a home.
Generally speaking, if a hopeful business owner meets all, if not most of the noted requirements, they’ll create a relatively simple path to financing a franchise.
What to Avoid
There are some key factors to avoid when funding a franchise. For example, if the franchise owner has future plans to be a multi-unit owner, they should take out at least a partial loan on their first location, even if they can afford it all cash.
“By doing this, a business owner can use leverage on their first location by utilizing a loan, with some money left over to make a decent-sized equity injection or the down payment on their second or third location,” David explained.
While it might be tempting to put all of your cash into one location, David advises first-time franchise owners to leverage their first location by securing outside financing.
“It’s economically feasible and advantageous to do that,” David added.
Best Practices to Fund a Franchise
Additionally, once an individual decides to inquire about franchise opportunities, they should stop shopping for credit about six to eight months before applying for a loan. This will keep their credit clear of inquiries and keep their credit score high.
“If a person has plans to open a franchise in the near future, it’s critical they do not have their credit score pulled unnecessarily,” David added. My Eyelab, mindful of this fact, uses a soft pull when assessing the credit of franchise applicants.
When in the market to pursue new franchise opportunities, prospective business owners should also pick an industry that’s doing well despite economic changes.
“In my view, My Eyelab is a great franchise to pursue right now because the telehealth model is virtually COVID-proof,” he added.
The My Eyelab business model has proven robust through innovative technology, allowing us to continue growing through franchising – achieving significant milestones and seeing record-breaking growth in 2020.
A Quick Guide to Financing Your My Eyelab Franchise with BoeFly
Take Advantage of the Opportunity
See how you can capitalize on the eye care industry by owning a simple, streamlined retail eye care franchise. We make it easy for you. Tap into our team of experts with 50+ years of industry experience and leverage our proven business model.