Funding your franchise business is no easy task regardless if you are just starting out or looking to grow an existing business.
Banks and other traditional lenders – while they do like franchise businesses for several reasons like proven track records, experience and huge brand recognition – are still not jumping up and down to fund these organizations. And, it might not be due to the franchise industry itself but more to do with the financial markets in general and lenders just not wanting to take any risks at all.
Even the SBA – a huge backer of franchise businesses – are at the mercy of banks and other preferred lenders when it comes to funding (or not funding) franchisees.
So, where does a current or potential franchise business owner turn to start or grow their business?
Look To Your Peers
Peer-to-peer lending – organically started in the United Kingdom (UK) – is more about helping individuals get low cost, non-bank loans from people just like you. Peer-to-peer lending works like this. Savers (those with additional money that they want to invest in ways that provide them some type of return on those funds – more than banks are currently giving) will sign up on a platform to look for other individuals that are seeking loans for personal needs – like consolidating debt, taking a vacation, fixing a vehicle or covering emergency needs.
The person wanting a loan also signs on to the platform, gets to tell his or her story and, after being scored by the platform, gets many different savers (individual lenders) to fund their request.
It is faster, cheaper and with a lot less hassle then a bank or other traditional lenders – if those sources would even approve your loan request that is. And, these platforms look beyond credit scores when making decisions.
So, what does this do for businesses or franchises as these peer-to-peer loans are for personal needs?
Peer Loans For Franchises
Again, started in the UK but now in North America, a company decided that they wanted to take the peer-to-peer lending industry to the business world. Thus, this company, Funding Circle, created a business loan peer-to-peer platform for both conventional businesses and franchises.
The platform offers franchise loans from $25,000 up to $500,000 – to be used to start or grow your business. These loans offer rates from 9.99% to 20.99% and can come with terms of three to five years.
Not bad for a business loan – try to get that from your bank!
From the platform;
“Full application takes less than 10 minutes and applicants receive pre-approval confirmation within 48 hours and the money in their account within 5-14 days of submitting the application.”
And, according to their website, the company has put out over $525 million in small business loans worldwide.
Lastly, Funding Circle is not alone. Lending Club, a U.S. based peer-to-peer lender is also offering true business loans up to $100,000 for one to five years at rates starting as low as 5.9%.
“We cut the cost and complexities of traditional bank loans and pass the savings on to borrowers with easy online applications, low fixed rates, fixed monthly payments, flexible terms, no prepayment penalties, no hidden fees and friendly service.”
And, again, since these business loans do not come from banks or other traditional lenders, they come with less hassle for approval and much less red tape.
Why Do These Loans Matter To Franchise Businesses?
Normally, we do not promote specific businesses. However, these companies are pioneering new ways in which to fund businesses and franchises – trying to do what they can to fill the funding gaps left open by banks and similar business lenders.
They are by-passing traditional underwriting methods and standards (whom many say no longer work in this new economy) and finding ways to say ‘yes’. And, through these peer-to-peer platforms, they are essentially taking the middle-man out (the problem to some) and letting those with money provide those funds directly to franchise owners who need it.
Image the shoe on the other foot. A well known franchise – one that you might frequent often – is asking for a loan and is willing to provide a fixed rate of interest in return. You have some additional money and help fund that loan knowing full well how good that business or franchise chain is. Not only do you help support a company you know well but you earn a fair return on your money (more then you would from keeping your money in a bank). This is a win/win situation.
Now, back to your franchise. Yes, you can apply and hope that a credit committee of a traditional lender approves your request (more likely they will drag it out for months and hope that you just go away) or you can use one of these new, peer based lending system, that puts your request in front of hundreds if not thousands of individuals who not only like and know your brand but have the money collectively to get you the loan your business needs. In my opinion, better to have partners like that then to not have your phone calls answered by a lender who really does not want to work with you at all.