Posted on Aug 26, 2013
Solving the Franchise Finance Problem
It's no surprise that, in an era of tight credit and abysmal lending by banks, it's not as easy as it used to be to start up a franchise. Great business owners with years of experience in the industry are finding themselves at a loss when they look for funding.
It often seems as though banks are looking for an excuse to say 'no' to franchise loan applications. As Katherine Swanberg, the owner of a Sports Clips franchise in Seattle, put it, “Almost all the documentation I gave them was inappropriate for one reason or another. My tax returns were not signed, or my tax returns were signed but not in blue ink, or my tax returns were signed on all but one page. It was pretty laborious, trying to get them everything that they asked for.”
How tight is bank credit? In the last year, only 13% of small business loan applicants received the full amount they requested. (While 37% of applicants were flat-out denied any funding.) To solve the problem, the US Small Business Administration (SBA) created a loan program targeted at franchise owners looking for up to $1 million. But only 1.4% of all loans under $100k and 0.7% of loans under $1m are SBA-backed. Even with the SBA program, many franchisees still get declined.
This leaves franchise owners with a few options: collect money from friends and family, go to 'loan sharks' and merchant cash advance companies that don't work with startups and charge high rates, or look for angel investors. Thankfully, there is now a new alternative for franchise owners.
A new wave of companies has made it easy again to get capital with an innovation called crowdlending, or peer-to-peer lending. The biggest crowdlender to franchises and small businesses is Endurance Lending Network. Founded in 2011, Endurance groups funds from investors and then redistributes it directly to franchise owners - no middleman, no high fees, no long wait. Because Endurance raises money from individuals to lend to franchises, it doesn't have to face the tight credit standards that make many banks say "no."
Crowdlending is steadily opening up funding for many franchise owners who were previously denied credit. If you are looking for new ways to finance your business, be sure look into peer-to-peer loans as an option. You may find it saves both your time and your wallet.
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