6 February Franchise Financing: Starting a Small Business with an SBA Loan February 6, 2024 By Melisa Rana Business Tips, Franchise entrepreneur, money management, small business 0 FRANCHISE FINANCING: STARTING A SMALL BUSINESS WITH AN SBA LOAN February 6, 2024 | Business Tips, Franchise | small business, money management, entrepreneur By Sammi Marcellus, NPI, Inc.'s Recruitment Coordinator Every great journey starts with the right tools, and for most entrepreneurs, that key tool is financing. While self-starting hustle and innovation are essential, even the best business plan can stall without capital. This is where SBA loans come in. Acquiring a loan through the SBA can be a great option for small business owners looking for that initial capital needed to franchise or otherwise start their business venture. To better understand if an SBA loan is right for you, let’s discuss some of the essentials. What is an SBA loan? An SBA loan is a specialized loan provided by partners of the US Small Business Administration. For entrepreneurs that have exhausted other options, an SBA loan can be the answer they’ve been looking for to cover the early costs needed to start a new business or expand their business. SBA loans are a great option for many because of their lower rates and the option of long repayment periods, but not all SBA loans are the same. It’s also not a guarantee that everyone gets approved for their desired loan. SBA loans vary from person to person in part because the SBA doesn’t give out loans themselves. Instead, the SBA partners with a wide network of banks, credit unions, and other third-parties who ultimately set the terms of the loan. The good news is that borrowers can compare different lending partners through the SBA’s Lender Match tool to find the best terms for their unique situation, allowing entrepreneurs the opportunity to search for the right fit. What Are the Benefits of Getting an SBA Loan? SBA loans benefit from low rates due to their imposed interest rate caps and favorable repayment terms, which can reach up to 25 years. There are a number of different types of SBA loans, some that can offer upwards of $5 million dollars in capital, but the SBA Microloan which maxes out at $50,000 is one that matches up well with franchise start-ups. While applying for an SBA loan can be time-consuming and require gathering diverse information, the process itself offers valuable benefits for any small business owner. Think of it as a built-in checkup on your business health! Here's what you might encounter: Business Plan: Crafting a solid business plan helps you articulate your vision, identify potential challenges, and map out your growth strategy. Even if you already have one, revisiting it for the loan application strengthens your understanding and potential success. Financial Statements: Gathering income statements, balance sheets, and cash flow statements provides a clear picture of your financial health, revealing areas for improvement and future opportunities. Tax Returns: Sharing your tax returns demonstrates your income stability and creditworthiness, crucial for securing loan approval. Credit History: Understanding your credit score and working to improve it strengthens your overall financial profile and increases your chances of favorable loan terms. Your Industry Experience: Writing out your industry background story can be an early boon for marketing! Note: When applying for an SBA loan, we recommend borrowing a bit more than the initial franchise costs to cover expenses while building the business! Also, when franchising with NPI, you can ask our recruitment team for a sample business plan, a pro forma worksheet, and other resources to help determine estimated net income on a yearly and monthly basis. What Can Keep You From Getting Approved for an SBA loan? SBA loans are a great option for many entrepreneurs, but not everyone gets approved. Having a poor track record with payments, defaulting on any other loans, filing for bankruptcy, or just generally having an unfavorable debt-to-income ratio can be red flags for lenders. Another way that background can become a sticking point in the SBA application process is if the borrower has a criminal background. Although this doesn’t necessarily result in disqualification, a criminal record can become more of a problem depending on the severity of the offense. Another reason that SBA loan applicants might be denied is due to lack of need. If borrowers haven’t explored other traditional loan options that they are qualified for, or they have plenty of capital or assets that they aren’t willing to devote to the business, the SBA may be less willing to approve the application. An SBA loan is designed with a particular focus on those that are limited in their available options, and who are currently working for a basis of income and assurance of future payments. Note: Subcontractors and people who are already small business owners will need to provide two years of tax refunds, instead of just paycheck stubs during their application! An SBA loan can be a fantastic financing option when the situation fits, and NPI has partnered with many franchisees who have utilized the SBA to start their own home inspection businesses. If you’re interested in franchising and want to discuss more about working with NPI, contact marketing team today to get the conversation started! If you are having trouble finding a lender on your own, talk to our recruitment team about other financing options! National Property Inspections is a family of industry experts 35+ years in the making! Get your free info packet today to learn more. About the Author Sammi Marcellus, Recruitment Coordinator A member of the Nebraska Army National Guard since 2017, Sammi assists the NPI recruitment team through building relationships with military veterans who are interested in franchising. Sammi has a background in customer service and is an asset to the NPI corporate team with her ability to relate with active and former military, guiding them through our recruitment process. Comments are closed.