SBA Loans: A Great Resource for New Franchisees

Investing in a Chop Stop salad restaurant is a great way to break into the hospitality industry with a unique concept and a time-tested business model. However, you might be wondering what kind of restaurant franchise financing is available to help you manage the initial investment. Chop Stop doesn’t offer financing to our franchisees, but our experts can refer you to several resources that can help secure you the financing you need. One of those resources is a government-guaranteed Small Business Administration (SBA) loan. With competitive interest rates for borrowers, the SBA loan is a popular option when it comes to salad restaurant financing.

What is an SBA Loan?

The federal government, understanding that entrepreneurs have the power to positively impact the economy, started the SBA loan program to give business owners a better way to grow their companies. Andrew Yang of Nerd Wallet opines: “… low annual percentage rates make the SBA program one of the smartest ways to fund your company. With some know-how and preparation, you may be able to secure some of the lowest [interest] business financing available.”

Borrowers can apply for a loan up to $5 million from a lending institution, and the government pledges to guarantee the loan. This allows lending institutions to offer SBA loans with much more competitive interest rates and terms than other loans. According to the official SBA website, benefits of these loans include “lower down payments, flexible overhead requirements, and no collateral needed for some loans.”

Who is Eligible for an SBA loan?

One of the first things lenders will need to establish is if the small business itself qualifies for an SBA loan. Fortunately, Chop Stop meets these industry and size requirements, helping to qualify our franchisees for SBA franchise financing. Along these lines, Chop Stop can also help you submit a business plan along with information about our company. It bodes well for our franchisees that we’re a well-established business with a record of growth!

Your personal financial standing will also play a part in a lender’s decision to offer you an SBA loan. Banks will look at your credit rating as well as your tax returns to determine if you’re a strong candidate. Having an ongoing revenue stream is also an important factor in their decision. Applicants with a strong credit history that make a good living at their current job are most likely to be approved for restaurant franchise financing. However, the SBA website notes that “even those with bad credit may qualify for startup funding.”

Another important criterion for an SBA loan is the down payment. SBA lenders typically look for applicants who are able and willing to put in 20% of the loan amount as a down payment. The fact that they’re willing to invest their own money into their business is a good indication that they’re more likely to repay the loan. This is also why Chop Stop requires franchisees to have $100K in cash.

How Does Repayment Work?

Along with your lender, you’ll work out a monthly repayment schedule based on the size of your loan and your estimated income. Together, you’ll work out the terms of your repayment. In general, the SBA doesn’t penalize borrowers who pay their loans off early, so many borrowers opt to take out a bit more than they know they’ll need in case of unexpected expenses, and plan on paying off any excess once their business is up and running.

What Can I Do to Help My Chances of Being Approved?

There are a few things you can do to help your chances of being approved for an SBA loan. If you don’t have 20% of the amount you’ll need to borrow in the bank, get this amount saved up. Having this much capital, and the bank statements or other documentation to back it up, is a great sign to lenders that you’re a serious, trustworthy candidate. Along these lines, take a look at your tax returns and make sure everything is in order. Demonstrating that your personal finances are in good standing can go a long way when securing franchise financing.

Potential Chop Stop franchisees already have advantages over many other applicants. Banks look for applicants who have a strong business plan, projections, and other data that can help them to determine the likelihood of their business’ success. While no one can predict the future, Chop Stop franchisees can provide lenders with much more detailed information than other entrepreneurs. As a well-established company, we work with our potential franchisees to help them secure the restaurant franchise financing they need. We provide them with comprehensive details about our business so they’re ready to address questions from potential lenders.

Another way potential franchisees can bolster their chances of being approved by an SBA loan is by going into business with a partner. If your credit score isn’t stellar, or if there are other problems with your application, working with someone else might be just the right option. Lenders are perfectly willing to issue SBA loans to a partnership rather than an individual. This is a great way to increase your chances of being approved while also lessening the financial burden on yourself!

Next Steps for Franchise Financing

If you think an SBA loan might be the salad franchise financing option that’s right for you, get in touch with Chop Stop today! We can help prepare you for your application and can give you information on other financing options like tapping into your 401k! Your dedication to starting a new career coupled with our expertise is a winning combination.

An SBA loan is a great way to secure the restaurant franchise financing you need to invest in a Chop Stop! For more info please fill out our form here