Franchise Finance - Lenders Tighten Up

The credit crunch for small business loans may be causing lenders offering both conventional loans and Small Business Administration (SBA) loans to think twice about providing money for franchise start-ups and expansions.

Not buying a franchise with a brand name, a track record of success in good times and bad or a solid core of long term operators? It will be tougher to get a franchise loan. Like every other business lender, The Wall Street Journal (subscription may be required) reports that franchise lenders are focusing more closely on cash flow projections, the borrower's equity contribution, secondary collateral and relationships.

The SBA has historically supported franchise financing with 10% of its loans going to franchisees. However, there are some signs that SBA lenders are pulling back on lending activities in general.

About 300 of some 4,000 bank participants around the country have reduced their SBA lending activity according to The Wall Street Journal. A handful of business journals have also reported that bank executives met with SBA and Treasury Department officials at the White House on March 5th to discuss small businesses' credit needs.

The meeting took place as lending through the SBA's programs continued to decline. Through March 7, the number of business loans made through the SBA's 7(a) program so far this fiscal year had fallen by more than 15 percent, compared with the same period a year earlier. The dollar value of these loans had declined by more than 7 percent.

No word on the outcome of this meeting other than something to the effect of "we're looking at it".

Want to know if the SBA will consider providing a guarantee in support of your franchise loan request? Check out The Franchise Registry for the SBA's list of approved franchise concepts. Being on this list doesn't guarantee a loan approval. It just means that your selected franchise concept has been vetted and approved by the SBA.

Need help finding the right SBA lender for your franchise acquisition? Read "Matchmaking for Business Loans" and give me a call!

Tags : franchise finance , franchise loan , SBA Franchise Registry , SBA loan , Wall Street Journal