Franchise Financing during the Slow Economy

The slow economy has hurt many businesses across the globe. During a downturn in the economy, most businesses will be affected by it in one way or another. As a result, new businesses tend to slow down in these times. You will see fewer and fewer franchises being started by new entrepreneurs. However, regardless of the economy, there will always be people starting businesses. For these times, franchise financing can be one of the most valuable tools available for new businesses.

Credit Ratings

When the economy is slow, the changes in the franchise financing industry are visible. There are a few things that are different about the process to get approved. Your credit score will have to be higher than normal. The sub-prime lending crisis had an effect on the way people get approved for any loan. Lenders are held to stricter accountability now and they have to justify lending you the money.

In previous years, you might be able to get approved with a less-than-stellar credit rating. If you do not have a good credit score, obtaining a co-applicant that does have one is a good idea. If you have a reputable partner, lenders will be more likely to approve your franchise loan.

Substantial Income

Obtaining franchise loans has always been for those that have enough cash to pay the bills. In a tough economy, banks are being even more strict about this. You need to be able to display enough income to pay the loan back.

Also, you will need to be able to demonstrate a certain amount of liquid assets and reserves. Depending on the franchise, you might need access to a few hundred thousand dollars in capital to get approved. This requirement alone excludes many people who simply do not have enough money to get started.

Larger Down Payments

In the past, there were many 100% loan programs available. In today's economy, these programs have gone by the wayside. You will most likely need to come up with a substantial down payment. If you do not have enough saved up to make the payment, franchise financing will probably not be an option in your case. Starting a business carries with it a lot of risk. Banks want to make sure that you are carrying your fair share of the risk with them.

Strong Franchises

Another important factor in business financing has to do with the strength of the franchise itself. Lenders are tending to invest in more established franchises instead of upstarts. If you want to be sure that you will be approved by a lender, make sure to present them with a good opportunity.

 The stronger the franchise, the more likely you are to be approved. Banks want to feel certain that your franchise can survive regardless of the economy on the horizon. The bigger, name brand franchises are the ones that usually survive bad economies and these franchises receive the majority of the loans.