Articles

Franchise Lending Using An SBA 7A Loan Solution

FRANCHISE LENDING USING AN SBA 7A LOAN SOLUTION

by

Gary Henderson, a Silver Fox Advisor

Franchising can offer a potential business owner a system that typically has a proven history of success in a particular industry. A franchise system is a defined way of doing business for a particular franchise concept. If the system is followed by the franchisee (franchise business owner), the franchisee should expect similar results that the other franchise owners have experienced, subject to local market conditions and location.

Franchising may help remove some of the “trial and error” learning that a business owner will experience in starting and owning a business. Key areas of a business that the franchisor provides support in: (1) site selection (2) equipment/inventory purchasing (3) selection/training of staff           (4) marketing (5) owner management oversight and (6) record keeping.

An important consideration for the potential franchisee is how to finance the costs of opening the franchise. For some franchises, the amount required to start the franchise may be small enough that the owner can handle the start-up costs out of personal resources. These resources might include cash, savings, retirement funds, stock or available home equity.

For the entrepreneur in need of financing to start-up a franchise, an SBA guaranteed loan could be the optimal solution.  An SBA 7a loan is a loan originated through a bank, a non-bank lender or credit union that participates in the U.S. Small Business Administration’s 7a loan program.

The SBA 7a loan can finance most of the needs that a franchisee will have in starting their franchise: (1) franchise fees, (2) leasehold improvements, (3) leasehold improvements soft costs, (4) purchase of equipment, furniture, fixtures or inventory, and (5) working capital.  The SBA 7a loan can also finance the purchase of an existing building or the construction of a new building, if the project requires the business to own the real estate.

In exchange for an SBA guaranty of 75% and a fee to the SBA, the lender may be willing to grant a loan that based on a lower required equity injection and a longer amortization (up to 10 years). These improved loan terms allows the franchise owner to preserve working capital for the daily operations of the business and have a more reasonable monthly debt service payment. 

As of October 1, 2023, the SBA has reduced the SBA Guaranty Fee to “0” for loans up to $1 million and has reduced the guaranty fees on loans up to $2,000,000. 

The improved loan terms that the SBA loan can provide are typically not available elsewhere in the market place.  Conventional bank loan terms are usually based on shorter amortizations and require a much higher equity injection (especially for a start-up business) and will probably require collateral to fully secure the loan.

A short loan amortization will result in a higher monthly loan payment and restrict the amount of cash flow available for the daily operations of the business. A large equity injection can reduce the loan amount and the monthly loan payment. However, a larger equity injection reduces the amount of back-up liquidity the business owner will have available. The franchise owner should consider the need to retain some back-up liquidity for unanticipated personal needs or to support the cash flow needs of the business.

When the franchisee experiences a business “bump in the road” in the life of their business, they will realize the value of preserving their business cash flow due to a lower loan payment (thru a longer amortization) and the potential of having back-up liquidity available to them (thru a lower equity injection).

The SBA 7a Guaranteed Loan is an excellent financing solution for franchisees, but is also great for small business owners seeking to purchase a building, expand an existing business, purchase an existing business or for a full or partial buyout of a business partner.

Seller Development Means Organization Success

Seller: any individual generating revenue by offering a product or service against payment while providing the complete “Customer Experience Journey” with titles such as Sales Executive, Field Application Engineer, Business Development Manager, Customer Experience Agent, Key Account Manager, Marketer, etc…

In this article, we will explore the importance of investing in sellers, the benefits it brings to organizations, and the strategies companies can adopt to nurture and enhance the skills of their sellers.

Last February, McKinsey released a report about “Transforming human capital into a competitive advantage”. This extensive study sampled worldwide, from large enterprises to small businesses in many industries, demonstrates how important human capital remains.

In today’s competitive business landscape, organizations are constantly seeking ways to gain a competitive edge. While several factors contribute to a company’s success, one aspect that often gets overlooked is investing in the development of its sellers.

The quote, “Organizations that invest in their sellers, prioritize their development, and invest in their skills are the ones that come out on top.” encapsulates the essence of the relationship between seller development and organizational success.

Building a Solid Foundation

Investing in sellers entails more than simply hiring competent individuals. It involves creating a culture of continuous learning and development within the organization. By prioritizing seller development, companies lay a solid foundation for success.
Training programs, workshops, and mentorship opportunities allow sellers to acquire the necessary skills and knowledge to excel in their roles. These investments enhance their selling capabilities and boost their confidence and motivation, improving performance.

Fostering Customer Relationships

Sellers are at the forefront of customer interactions and instrumental in nurturing strong relationships. When organizations invest in their sellers, they empower them to establish meaningful connections with customers.
Sellers with in-depth product knowledge, excellent communication skills, and a customer-centric mindset can better understand customer needs and provide tailored solutions.
It leads to enhanced customer satisfaction, increased loyalty, and, ultimately, more significant revenue for the organization.

Adaptability and Innovation

The business landscape constantly evolves, driven by technological advancements and changing customer demands.
By investing in seller development, organizations equip their sellers with the agility and adaptability required to thrive in this dynamic environment.
Continuous training helps sellers stay updated with industry trends, emerging technologies, and sales techniques, allowing them to adapt their approach accordingly.
Furthermore, investing in sellers’ skill development encourages innovation, as they are more likely to identify new opportunities, propose creative solutions, and drive growth for the organization.

Retaining Top Talent

Investing in sellers improves performance and increases employee satisfaction and retention. When organizations demonstrate a commitment to the growth and development of their sellers, it fosters a sense of loyalty and engagement.
Doing so makes sellers feel valued and supported, leading to higher job satisfaction, and reduced turnover rates.
Furthermore, investing in development programs allows organizations to identify high-potential sellers and provide them with growth opportunities, thereby nurturing a pool of talented individuals who can contribute to the organization’s long-term success.

Strategies for Seller Development

To effectively invest in seller development, organizations can implement several strategies. Firstly, they can design comprehensive training programs that cover product knowledge, sales techniques, customer relationship management, and other relevant skills.
These programs can be delivered through in-person workshops, online modules, and mentorship opportunities.
Additionally, organizations can establish a culture of continuous learning by encouraging sellers to participate in industry conferences, webinars, and professional development courses.

Conclusion

Investing in seller development is a strategic move that enables organizations to gain a competitive advantage and achieve long-term success.
By prioritizing the growth and skills of their sellers, companies can build a solid foundation, foster strong customer relationships, adapt to changing market conditions, and retain top talent.
To stay ahead in today’s fast-paced business environment, organizations must recognize sellers’ crucial role and provide them with the necessary resources and opportunities to thrive.
Only by investing in their sellers can organizations position themselves as industry leaders and emerge victorious in the marketplace.

Post covid, buyers’ technics and communication protocol changed. Was your sales team trained for today’s reality?

If you have questions or would like a more in-depth conversation on sales training, please contact:

Michel Privé
713-907-6310
[email protected]