Three Tips for Financing
Your Franchise Purchase

By JULIE BENNETT

Now is a good time to borrow the money to buy a franchise, say small-business lenders. Banks and finance companies are "flush with capital," which puts start-up franchisees in a good position, says Reginald Heard, national accounts manager for CIT Small Business Lending in Livingston, N.J. Many local bankers who shied away from franchise loans only a few years ago are granting them today.

Here are three tips for those seeking loans to fund a franchise purchase.

1. Get to know your banker.

The personal approach worked for former insurance salesman Dell Cannon, 54, of Lubbock, Texas. He'd met Bob Cosby, the new senior vice president of City Bank in Lubbock, at a mutual friend's birthday party. Last year, while he was checking out franchises, Mr. Cannon visited Mr. Cosby at the bank to give him updates. Once he'd chosen Budget Blinds, of Orange, Calif., Mr. Cannon dropped off Budget Blinds's financials and other documents so Mr. Cosby could check out the franchise himself.

Mr. Cosby approved Mr. Cannon's request for an $87,000 loan (out of a total investment of $110,000) payable over three years at a variable rate of about 9%. He also became the franchisee's first customer. Mr. Cosby and his family had recently moved to the community. "It was a service we needed ourselves," he says.

2. Find out if an expedited approval process is possible.

Most franchise loans are made by national banks and finance companies, which usually require a guarantee by the U.S. Small Business Administration (SBA). Until recently, you could expect securing a SBA-guaranteed loan to take at least three months, but in some cases the wait can be considerably shorter.

When Terry Plemons, 51, of Southlake, Texas, needed to borrow $100,000 to open a CertaPro Painters franchise (total investment $150,000), his loan application was approved in six weeks.

One reason was that the CertaPro Painters system is listed on the SBA's Franchise Registry, a program that offers an expedited loan-approval process to eligible applicants seeking to buy into franchises on its pre-approved list. About 561 of the more than 2,000 franchise systems actively seeking new franchisees are listed, according to FRANdata, a research firm in Arlington, Va., which administers the Registry in partnership with the SBA.

Mr. Plemons also sought out SBA preferred lenders, institutions that can make loan approvals in-house, rather than having to send small-business applications to one of 75 SBA regional offices. He downloaded a list of SBA preferred lenders in the Dallas-Fort Worth area from the SBA's Web site and started "dialing for dollars," he says. He called preferred lenders within driving distance of his future franchise territory, sent his business plan to those that were interested, got four or five offers and received his money before he started CertaPro Painters training classes last summer.

3. Don't give up after one rejection.

Eric Hamilton, 42, of Maple Heights, Ohio, says he was turned down by three Cleveland-area preferred lenders when he was buying a Signs for Tomorrow franchise. Then Huntington National Bank in Cleveland approved a loan for $140,000 (total investment about $200,000). He opened his sign shop in September 2005.

Mr. Hamilton, a former stockbroker, says the other lenders were concerned that the franchise would not generate enough income to support his lifestyle. Robin Griggs, vice president and credit specialist at Huntington National Bank, says she felt that because Mr. Hamilton's wife works, the risk would be offset. "Once I met Mr. Hamilton, I knew he had some of the things we look for in people -- education, success in a former career and a good personal credit record," Ms. Griggs says.

"I think it's a weeding-out process," says Mr. Hamilton. "People who give up easily were never meant for business ownership."

-- Ms. Bennett is a free-lance journalist based in Northbrook, Ill.