Allegiance Bank

Gary Henderson brings 42 years of banking experience, including 26 years in SBA lending and 16 years in commercial banking and credit management. Specializing in SBA 7(a) and 504 loans, he supports business acquisitions, construction, franchise start-ups and partner buyouts.

A Proven Framework for Operations

Franchising offers aspiring business owners the opportunity to invest in an established business model with a proven track record of success. Rather than growing a company with no established business model from the ground up, franchisees benefit from an established system that has been tested and refined within a specific industry.

A franchise system provides the franchisee with a defined framework for operating a business. When franchisees follow a franchisor's established processes and best practices, they can position themselves to achieve results similar to other franchise owners.

One of the key advantages of the franchise model is that it reduces the trial-and-error learning curve often associated with small business ownership. Franchise systems typically provide guidance and support in critical areas like site selection, equipment and inventory procurement, employee recruitment and training and financial reporting and recordkeeping.

While franchising may reduce the challenges associated with starting a business, prospective franchise owners must determine how they will finance the costs to open their new business.

Exploring Franchise Financing Options

For some franchise concepts, startup costs may be modest enough to be funded through personal resources like cash savings, retirement funds, marketable securities or home equity. However, many franchise opportunities require a larger capital investment, making outside financing an important consideration.

For entrepreneurs seeking financing, a loan through a participating SBA 7(a) lender may be one of the most effective and flexible financing solutions available. The SBA 7(a) loan is originated by the participating bank, credit union or non-bank lender with a guarantee from the U.S. Small Business Administration (SBA).

Preserving Capital through SBA Financing

An SBA 7(a) loan can cover many of the expenses involved in opening a franchise, including franchise fees, leasehold improvements and working capital.

In addition, SBA financing may be utilized to purchase an existing building or finance the construction of a new facility when ownership of the business’s real estate is part of the owner’s strategic plan.

“One of the key advantages of the franchise model is that it reduces the trial-and-error learning curve often associated with small business ownership.”

As the SBA provides a guaranty to the lender, participating financial institutions are often able to offer more favorable financing terms than conventional lending programs. These advantages may include lower equity injection requirements and longer repayment terms, with amortizations extending up to 10 years, and up to 25 years for real estate related transactions.

These enhanced financing terms provide significant benefits to franchise owners. Lower equity requirements allow borrowers to preserve cash for working capital needs and unexpected expenses, while longer repayment periods may result in more manageable monthly debt service obligations.

By comparison, conventional financing typically requires a larger down payment, shorter amortization and additional collateral, particularly for startup businesses. While a larger equity investment reduces the overall loan balance, it can also diminish the owner's liquidity reserves and limit financial flexibility during the challenging early stages of business operations.

Supporting Business Growth beyond Franchising

Maintaining adequate liquidity is essential for the business owner. Preserving cash reserves may provide a financial cushion for unexpected personal obligations, seasonal sales and expense fluctuations or operational challenges that may arise after the business opens.

When a franchise owner encounters the inevitable ‘bump in the road,’ the value of lower monthly loan payments and retained liquidity is readily apparent. The combination of improved cash flow and readily available reserves may provide the flexibility to navigate challenges and maintain business stability.

The SBA 7(a) loan program offers a flexible financing option not only for franchise startups but also for a range of other business needs, including purchasing owner-occupied commercial real estate, expanding or acquiring an existing business or buying out a partner. For entrepreneurs considering franchise ownership, SBA 7(a) financing can provide the capital and cash flow flexibility needed to establish and grow the business while preserving liquidity for future opportunities.