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Small Business Financing And Why This Is The Time For Low Cost Franchises

Written by: Candice Clem

Article Overview: There are many financing options for an entrepreneur interested in taking advantage of a small business opportunity, but this is probably not the time to pursue them. If financing is not available to you, consider choosing a cheaper franchise.

Small Business Financing And Why This Is The Time For Low Cost Franchises

Paying for a small business is never an easy matter, and frankly, it’s the part of the transaction that people least want to think about. Often the purchase of a business requires some kind of loan, and under usual economic conditions, finding the financial support to afford a franchise business may be uncomfortable, but it’s far from impossible.

Financing Options

There are many financing avenues by which an entrepreneur can attain the monetary support necessary to start a franchise, and one of the most common ways is through the Small Business Administration. If the business that a buyer is interested in has already been registered with the SBA, going through them to take out a commercial loan is infinitely easier than going directly through a commercial institution. That’s because the SBA works to promote the founding of viably strong small businesses by offering a 75% guarantee on behalf of the entrepreneur to any institution that will provide a loan to help purchase or initiate the business opportunity.

Without the assistance of the SBA, there are still normally many financial institutions that will lend funds to startup businesses. If the requested loan is less than $100,000, lenders will often grant an unsecured loan based solely the borrower’s credit history. If the request is for a loan of greater than $100,000, it may be harder to attain, requiring work experience relevant to the business in question, to ensure that it has a fighting chance of success, as well as some form of collateral to put up against the loan. Though it’s a tempting course of action to take, going this route can often be risky, as the interest rates may be higher and repayment is tricky if you make no profit.

Other means of financing a business are home equity loans and credit cards. The latter is almost always a bad idea, costing far more in interest than any other financing method. A home equity loan, however, can be profitable; providing some of the best interest rates available, but it’s only worth the risk under very specific conditions. A single man offering up his home as collateral might be making a decent move, but if you have a family to think about, leveraging their home to support your business is probably more of a risk than it’s worth.

The Problem of Finding a Lender

Remember, however, that these means of financing a business are plausible options under normal economic conditions, and today’s economy is anything but normal. In fact, it’s as volatile as it ever has been, and one of the industries most heavily hit by this recession, unfortunately, is the banking industry.

These days, there isn’t any bank that’s really doing well. For those who remember, it hasn’t been more than a couple months since Washington Mutual folded and was rescued and enveloped by JPMorgan Chase, and it’s been an even shorter time since Wachovia was overtaken by Citigroup. And, perhaps because the economy is so destitute, those acquisitions and a stalwart commitment to avoiding risky mortgage lending have done absolutely nothing to help JP Morgan Chase and Citigroup. Despite touting a "fortress balance sheet," JP Morgan Chase is seeing continual decline in stock prices, which are now down to $23 a share, a price they haven’t seen since 2003. November 19th and 20th, Citigroup stocks suffered roughly 25% value losses for two straight days. Even the presumed indefatigable power of Goldman Sachs suffered a 6% loss that week. All of which is to say that few, if any, banks are in a position to lend money to prospective entrepreneurs.

An Alternative

That doesn’t mean that finding a lender is impossible, just that it’s more difficult than it has been for a long time, and waiting to find that lender may not be a very profitable endeavor. Unless you have your sights set on a particular franchise, it may be time to think about starting your life as a small business entrepreneur a little more cheaply than you may have anticipated, so that you can perhaps afford to start into business without anyone else’s help. And a low cost franchise may be just the way to do it. Here are a few cheap franchises to get your mind running on possible business opportunities that won’t require the investment of a bank.

CompuChild
With a very minimal price tag of only $20,000-30,000, this educational home based business is a great opportunity for anyone who loves technology and kids and wants to work regular business hours. Establishing business relationships with local schools, franchisees bring computer equipment into daycare facilities and preschools to offer children a head start in their understanding of technology.

Furniture Medic
Part of the largest family of franchises, this home business is regarded as one of the best names in wood and furniture restoration and repair. The franchise package comes complete with full initial training, ongoing support, and all the equipment necessary to serve a wide variety of clients, including homeowners, hotels, and furniture retailers. And if the $25,000 price is still too high, in-house financing is available.

National Property Inspections
Property inspection is a profitable trade in any economic condition, and with National Property Inspections, anyone can learn to enter the field and profit from it. Trained on site at central headquarters and at home in his own office, a work from home franchisee is prepared to take the business in any direction he wants, running it as an owner/operator or the manager of a large staff, and it all costs less than $30,000 to start.

The fact that the lending market is in a crunch is no reason to not pursue the business opportunity that may just be your ticket out of your own economic slump, but it is reason to perhaps change your approach. If you don’t currently have the finances to initiate a small business, remember that starting smaller and in your price range is a very real and profitable alternative, and it may be just what you’re looking for.

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Article Tags: bad idea, best interest, commercial institution, commercial loan, credit history, economic conditions, fighting chance, financial institutions, financing a business, financing options, franchise business, home equity loan, home equity loans, monetary support, sba, small business administration, small businesses, startup businesses, unsecured loan, work experience



Related Forum Posts
My entry - 1. The Best Business Books Ever: The 100 Most Influential Business Books You'll Never Have Time to Read - this is a fascinating book about the history of Business theory, and I'd recommend it to anybody. 2. The Big Book of Small Business: You Don't Have to Run Your Business by the Seat of Your Pants, by Tom Gegax. Ditto. 3. PADI: The Business of Diving Book Okay, so this book won't be of use to anyone who doesn't want to start a scuba store, but I did, and this book was of course invaluable to me in reaching that goal.
New Small Business Topic - Hello everyone, I'm on the lookout for new topics to add to my site. We just launched a Franchising section and are planning Human Resources section. Do you have any thoughts for a new section? Here's a list of what we currently have: Angel Investors Branding Bank Loans Business Coaching Business Plan Franchises (New) Insurance Legal Marketing Public Relations Sales Small Biz Loans Venture Capital
re: restaurant start-up - I'm not sure about government grants for restaurants, but my recommendation would be to approach a lender that offers loans under the Canadian Small Business Financing Loan program where the government will guarantee 85% of the loan. You can borrow up to $250,000 to finance equipment and renovations under this program. Restaurants are very risky business, however some of the Chartered Banks will look at restaurants if there is enough of an initial equity investment and you have a solid business plan (experienced management team, good concept and strategic location).
No fee biz banking - I miss Bizsmart - it was a great no fee banking option for businesses but I guess the company wasn't making much returns and had to shut down. Are there any other no fee or Low Cost Business banking options still available in Canada?
These maybe the coldest franchises out there: - Here are the worst 15 performing franchises in regards to having the highest Small Business Administration (SBA) loan failure rates. The list is dotted with sub sandwich shops, fitness centers and car shops. WORST FRANCHISE LOAN FAILURES Failure % 1 OBEE'S SOUP SALAD SUBS 55.56% 2 LADY OF AMERICA 41.94% 3 COUNTRY CLUTTER (BED & BREAKFAST) 41.18% 4 COPY CLUB 36.36% 5 ALL TUNE AND LUBE 35.71% 6 PICKERMAN'S 35.71% 7 PHILLY CONNECTION 35.59% 8 ROLY POLY ROLLED SANDWICHES 34.78% 9 COTTMAN TRANSMISSION 34.48% 10 HAIR COLOR EXPRESS 33.33% 11 LEE MYLES AUTOMOTIVE TRANSMISSIONS 33.33% 12 GODFATHER'S PIZZA 33.33% 13 SMOOTHIE FACTORY 33.33% 14 BLIMPIE 31.39% 15 GOLF U.S.A. (RETAIL GOLF EQUIP.) 30.77% Source: Small Business Administration, SBA Loan Performance Within Franchise Code for the Period of FY 2001 - 2005


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