The Internicola Law Firm, P.C.

Finding Funds to Franchise Your Business or Expand Your Business

Colleen DeBaise wrote a recent article in the Wall Street Journal “How to Finance a Growing Business” in which she explains financing options for growing your business.  This article was not written with the start-up entrepreneur in mind but rather for an experienced and successful business owner who is looking to expand their business due to the profitability of the business and the popularity of the business.

Successful business owners considering expanding their business either by franchising their business or to just to purchase a larger property for their business can benefit from knowing what resources are out that for business expansion funding. 

Here are a variety of financial lending options that can be utilized if you want to expand your business:

• Business Lines of Credit – A business line is similar to a credit card which allows companies to cover cash flow shortages and purchase expensive inventory.  A line of credit can be obtained as a new business owner but a bank will usually  be willing to give a growing business around the amount range of $100,000 or so whereas a business just starting out will usually only qualify for a line of credit in the range of $15,000 to $20,000.  The most common line of credit is a revolving line of credit which allows a business owner to draw on funds as needed (usually at a variable interest rate).

• Microloans – A microloan is a small loan, usually of less than $35,000, which is used for start-up businesses or newly established business that do not yet qualify for a traditional business loan. While this is generally used for new businesses a business owner having trouble obtaining  a traditional bank loan may consider this option.  Microloans do often have a few drawbacks though such as their high rates and difficulty finding a microlender in your area.

• SBA Loans – An SBA Loan (Small Business Association Loan) is not a loan from the Small Business Association itself but rather a loan through a traditional bank that is guaranteed up to 90 percent by the SBA.  SBA loan volume has declined dramatically due to the economic condition and the banking crisis a few years ago.  SBA-guaranteed loans are useful for companies that do not have a lot of fixed assets that could serve as collateral and often have longer maturity than a conventional bank loan making payments stretched out over a longer period of time which in turn makes the monthly payments lower making it easier for a business owner to qualify for an SBA loan.

• Bank Loans – A bank loan is often one of the harder loans to obtain for a business according to most business owners and business professionals that you may talk to.  If you are considering applying for a bank loan it helps to keep in mind that business bank loans are normally given to businesses who are not struggling for money and have the funds to finance their business growth without funds from outside sources but are just financing because they do not want to use their own money not a business that is struggling financially.  If you qualify for this type of business loan and are considering going with this option to expand your business it is important when meeting with lenders that they will be taking everything into account.  Not only will the bank be looking at your financial status but they will be expecting you to have a business plan, financial statements for the past two to three years and projected earnings.  They will also be looking to see what type of confidence you are putting off about your business and its success so remember to go into the bank prepared.

When considering expanding your business by opening more business locations, franchising your business or just moving to a larger business area and buying more supplies it is important to speak with the proper business professionals.  Ms. Debaise suggests in her article that prior to getting involved in any business expansion loan that entrepreneurs should “educate themselves about the loan terms, payment options and interest rates, and to consult with others – such as an accountant, an attorney, a mentor or another business owner”.