Franchise Funding and Today's Economy: How to Get the Right Loan

If you’ve recently cringed at the gas pump, grocery store or coffee shop, you know that everything feels more expensive these days. But don’t let a negative narrative get you down.

Even in this economy, strong borrowers are still strong borrowers. In this blog, we’ll cover what you need to know about today’s economy and how you can still acquire franchise funding or small business financing.

Interest Rates

While interest rates have increased, you shouldn’t compare the rate of a franchise loan to a mortgage from 2 years ago. That’s apples and oranges, says Nancy Broudo, SVP of Business Development at BoeFly. With realistic projections and the right preparation, you’d be surprised how ready banks are to lend. It’s also worth noting that interest rates are often variable, she continues. There’s a chance that they could come down before the term of your loan ends. 

Inflation

Everything from the cost of furniture to fixtures and inventory has crept up. But Franchisors are paying attention and making changes. From smaller footprint stores to inline builds and conversions, there are many things franchises can do to help lower the cost of investment.

To help give you an accurate idea of the loan you’ll need, franchisors can also be diligent in updating Item 7 of their Franchise Disclosure Document (FDD) which lists expected investment costs. According to a recent survey by BoeFly, 86.4% of franchisors agree that inflation has caused them to increase cost estimates in Item 7. However, with the right approach and accurate estimates, planning for a new franchise build looks a lot like it always has.

Supply Chain

Supply chain is another hot-button word that floats around franchising. But like anything, the right planning can outweigh almost any issue. Anticipate potential delays and build a buffer into your loan estimate accordingly. While it’s impossible to predict everything, the phrase “Better safe than sorry” holds as much value as ever.

How can I improve my chances of getting a loan?

• Reduce existing debt. Lenders have always been mindful of existing debt, especially high-interest variable debt like credit cards. In an uncertain economy, they are even more mindful. Talk to a funding specialist about potentially paying down debt before you apply for a loan.

• But don’t drain your cash. Here’s the other side of the coin. With rising interest rates, businesses may not ramp up as quickly as projected, and extra liquidity can help to offset slower ramp-up times. So, while paying down your debt is a good step to becoming a strong borrower, you also want to maintain some liquid capital.

• Consider banking where you borrow. As deposits decrease and borrowing increases, banks must be more aware of maintaining enough cash to meet federal requirements. They prefer to lend to borrowers who will also keep their deposits with the bank. In today’s market, it’s often required. That said, SBA lenders are still largely unconcerned with where you maintain your deposits. Be sure to ask your funding specialist about the best move for you.

• Do your homework. According to Broudo, if you’ve done your due diligence, completed your proforma and run the debt number through it at current rates, you’re in a good position to apply for franchise financing.

How can BoeFly help?

As you’ve read there are a lot of factors that influence franchise funding — more than we have space to cover here. A funding specialist at BoeFly can support you at every step of the financing process by

• Understanding your full financial profile
• Educating you on market conditions
• Matching you with the right lender
• Explain lender requirements for liquidity, credit, and collateral

BoeFly funding specialists closely understand lenders’ loan options as well as their appetite for certain brands, industries, project costs and markets. With BoeFly’s unique industry knowledge and partnerships, they can help fast-track your loan search and application.  

If you’re planning to launch a franchise or small business in the future, be sure to connect with BoeFly early in the process. Securing a timely loan with the right lender can set the trajectory for the future of your business. To get connected, fill out this form.