The impact of a strong business plan on loan acquisitions

Jessica SarterFranchise Finance

When you apply for a loan from a financial institution specializing in franchise lending, you're selling yourself and the way you do business. To help sway a bank toward taking a chance on you, you may want to develop a sound business plan that illustrates your legitimate and reasonable goals for the future.

Best practices for forming a business plan
Figuring out the current state of your finances is essential when planning to apply for a franchise business loan. Determine what assets are ready to be invested into your planned project, outline the resources that can be put up as collateral and show that you've either had recent success with your existing business or that you've done well in a similar field in the past.

Also, it's important to know where your personal and business credit stands, since both will be closely examined by any lender.

Explain in a clear and concise manner what you're looking to do – whether you're planning to expand your existing franchise business or open a new one – and how you plan to do it. Outline how the money from your franchise loan will be spent, and how you intend to pay it back.

Presenting yourself to a lender
Lenders will, to some extent, look at you as a person – your personal credit history, resume and the way you present yourself. Your credit must be at a respectable level. A FICO score of 700 or more is likely to be acceptable to many lenders. Your resume should show that you've previously worked well in the field of your intended business, particularly if you're seeking a hotel loan for a new establishment under a recognized hotel franchise.

The way you explain your plan when addressing a lender is also important. You should speak and act confidently, but not appear overly ambitious and unrealistic.

Presenting your business to a lender
If you're applying to expand an existing business, show your lender sales figures for the last 12 months. Even if they're not entirely in the black, they should indicate the potential to reach that level. Those starting new franchise businesses should consider doing the same, using data from a previous business.

Lenders may look favorably on a business that has positively impacted a community, perhaps by helping to revitalize business a formerly distressed area. If you've done that with a past or present business you were in control of, make sure your lender knows.

Basically, anything you can show a lender that proves your worth and potential as a sound business owner can be helpful in the search for franchise lending.