Who Will Lend to You During the Franchise Financing Process? An Interview with BoeFly CEO, Michael Rozman

Jessica SarterPress Releases

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FitSmallBusiness co-founder, Marc Prosser, conducted an interview with Michael Rozman on June 22, 2015. With experience as an executive, an advisor, and an investor, Prosser understands the position of borrowers and lenders in the small business world. FitSmallBusiness provides detailed analyses of the highest quality software, services, and financing for small business owners. Dedicated to providing entrepreneurs with accurate financing information, Prosser conducted this interview with BoeFly CEO, Michael Rozman, to give franchisees some insight to the financing process.

How difficult is it to find financing to start a new franchise?

A person’s credit history often determines the difficulty they will have during the financing process. Most accepted franchisees possess a good credit history and work with a quality franchisor. Though credit quality cannot be based solely on a franchisee’s FICO score, a FICO score around 680 is usually considered a representation of a good credit history. However, many small business owners with lower FICO scores also receive financing from lenders on BoeFly.

Using the traditional bank-to-bank approach to small business financing, franchisees waste valuable time and effort waiting to hear back from banks uninterested in financing their loan. BoeFly’s online loan exchange solves this problem by quickly matching borrowers with compatible lenders out within BoeFly’s extensive lender network.

What are some of the reasons a bank might not want to finance a loan to start a franchise?

Without confidence that a borrower will repay the loan, a lending institution will not extend loans to franchisees. Several factors affect this confidence including borrower financial history and franchisor launch histories. Franchisors with a low number of existing units, shorter time spent in the industry, and low success rates and revenues of franchisees negatively affects the confidence of lending institutions.

Are there some franchise businesses that are not bankable?

Home based businesses and franchises that have start-up costs below $15,000 have a harder time obtaining bank financing. That’s not to say that home-based businesses are not successful. However, banks typically do not want to fund this type of business model.

How involved are franchisors in helping accepted franchisees get loans?

Franchisor involvement varies significantly. While some brands believe franchise financing is solely the responsibility of the accepted franchisee, others believe that the franchisor should actively participate in the financing process. For instance, Jamba Juice actively participates in the financing process by subsidizing the BoeFly subscription fee for promising franchisees.

When researching franchise opportunities, prospective franchisees should consider the level of franchisor involvement during the financing process.

What are the typical loan sizes, interest rates, and terms to start a franchise?

Listed below are some quick facts about SBA loans:

Amount: $100,000 – $500,000

Interest rate maximum set by the SBA: 5-6%

Loan term: 7-10 years

To view the original interview click here.