Opening a franchise can be a great way to grow capital and expand into commercial real estate. However, as with all business ventures, they’re not guaranteed to succeed. Oftentimes, the franchise brand plays a large role in its success based on name recognition, fees, industry, and other factors. As we go further into 2020, these categories and brands top our list as the most likely to offer a return on your investment.

PRC Small Business Loans Top 5 Franchises to Buy in 2020

The Pros and Cons of Owning a Franchise

Franchising is about risk reduction; they provide a higher chance of success as a business owner. Franchise owners receive training, guidance, and support from the franchisor, but they are required to run their individual location and adhere to specific standards and operating systems in order to maintain consistency and brand integrity. The biggest advantage of buying a franchise is the name recognition, as well as the training and support you receive from the franchisor.

However, franchises are not guaranteed to succeed, and the company is not going to bail you out if you have trouble. One of the main concerns when opening a franchise is the one-time franchise fee and the recurring royalties. Franchise fees can range from $10,000 to over $1 million. In addition, the royalties can be a flat fee or scale up as your franchise starts to succeed. Both of these options can work, but the one that’s best for you will depend on your short-term and long-term capital. In addition, because franchises have strict guidelines, business owners have less control over their decisions. Finally, franchise contracts can have long terms, and if you’re unhappy with the franchise, it can be time-consuming and expensive to get out of the contract.

What Makes a Successful Franchise?

Franchises can be less risky than opening a startup because owners can take advantage of an established operating system, target market, and ongoing support from the parent company. Successful franchises have several qualities in common. Several of these factors include having good brand recognition, a positive track record, and a unique offering. Equally important are the franchisor-franchisee relationship and the entry costs and ongoing fees. Franchise owners that are unhappy with their agreement may feel better off opening an independent store in the same industry or may find the fees too high to operate at a profit. Consider the industry and franchisee retention of a franchise before deciding on one to buy, and carefully look over the Franchise Disclosure Document (FDD) to gain an understanding of the franchise’s costs and fees, retention rates, and more.

Rising Industries/Categories

If you don’t have a specific industry or franchise category in mind, it helps to look at growing trends. In 1995, video rental stores probably seemed like a safe bet for the long-term, but there is only one Blockbuster with its doors still open. Industries such as fast food still have large profits, but healthier-sounding fast food stores are on the rise. Still, if you have experience in an industry, you’re likely better off going with what you know than choosing an industry with which you’re completely unfamiliar.

Some of the industries with the best chance of earning a return on your investment include the following:
1. Food and Beverage
2. Senior Care
3. Staffing
4. Beauty and Grooming
5. Retail
6. Health and Fitness
7. Signs and Design
8. Automotive
9. Finance and Tax Services
10. Travel and Hospitality
11. Cleaning Services
12. Education

These categories tend to be stable and have high enough profit margins to cover the cost of running the franchise and paying royalties.

Top Franchise Brands

Well-known franchise brands such as McDonald’s often have extremely high profits, but initially opening a store will be more expensive for the privilege of using such a well-known brand, which ultimately lowers your profit margins. However, with such high gross sales, the overall amount of profit you bring home is still very high. While profit margins and fees are often the first concern you may have when searching for a franchise, there are many other factors that impact how beneficial a franchise brand can be. Because the training and resources that a franchisor provides, having a solid support network can be key to your franchise’s success. In addition, the franchisor’s brand recognition, ability to grow, and corporate financial health can all affect how successful an individual franchise will be.

We compared several factors, including the cost and fees, brand growth, franchise support, and financial strength and stability to compile our list of the top franchises to buy in 2020.

• FASTSIGNS
  • FASTSIGNS is in a rapidly growing industry. They offer training and support, including site selection, and their franchise fee is just shy of $50,000.

• Re/MAX
  • Re/MAX is a well-known brand in a high-profit industry that has been established for over 40 years. Though the overall initial investment may be high, the franchise fee is typically just $15,000 to $30,000.

• Dunkin’
  • Dunkin’ reigns supreme in the Northeast, and they have a solid hold on the breakfast and morning routine market. Though rather expensive to open, with franchise fees up to $90,000, they offer a solid support network.

• MaidPro
  • MaidPro has the benefits of possibly creating recurring customers and not having to worry about wasted overhead. With a franchise fee of just $20,000, they’re inexpensive to start out.

• Planet Fitness
  • Planet Fitness has an impressive five-year growth rate of 22% and a median annual operating income of $567,000. It also has a franchise fee of just $10,000.

Obtaining a Loan for a Franchise

Some lenders offer loans specifically for franchises, though you can finance a franchise with a traditional term loan. Some franchisors may also offer funding to help you establish your franchise. In addition, you may consider an SBA loan, which is backed by the Small Business Association and tend to have long term limits and lower interest rates. You also could consider non-traditional funding such as crowdfunding from investors.

At PRC Small Business Loans, we offer financing to help streamline your commercial real estate loan. We connect you to government backed loan programs, and other creative small business financing solutions to help you succeed as a franchise owner in 2020 and beyond. We also offer financial advisory to help you determine which type of loan works best for you and your business needs. If you are interested in buying a franchise, reach out to one of the financial experts at Pioneer Realty Capital. To speak with an advisor, call 877-350-9416 today.

Small business loans are essential to help entrepreneurs and business owners get their new businesses off the ground or to expand their existing businesses. They’re often used to purchase real estate, inventory, and equipment, as well as cover costs associated with starting or expanding a business. There are several different varieties of small business loans, each of which may be better for a particular small business owner than another. Explore the different types of small business loans, and how best to obtain one in 2020.

Types of Small Business Loans

Traditional Small Business Loans Explained

Anyone looking to secure a small business loan needs to evaluate their options to find the type of loan that works best for them and their unique circumstances. Loans can vary in their requirements, maximum amounts, terms, interest rates, and more. In addition, for small businesses, there are both traditional loans and loans guaranteed by the Small Business Administration (SBA). The following are the most common types of small business loans.

Traditional Loans

Business Line of Credit: With a business line of credit, you are approved for a revolving line of credit with a maximum limit that you can borrow from the lender, similar to credit cards. You can access your line of credit for any of your business needs, and you’ll be charged interest for the amount of money you draw, not on the maximum limit.

Commercial Mortgage Loans: As the name implies, this type of loan is used to buy, refinance, or develop commercial real estate.

Franchise Loans: A franchise loan can help you purchase or expand a franchise, although you could also use a standard term loan. These loans can be used for traditional business opening expenses as well as franchise-specific expenses, such as the franchise fee. Some franchisors may offer funding to help establish the franchise.

Invoice Financing: Also called invoice factoring, this type of loan can help with your business’ cash flow if you’re waiting on invoices to be paid. With invoice financing, you sell your unpaid invoices to a lender at a discount, who then will hold a portion until the invoice is paid.

Merchant Cash Advances: With a merchant cash advance, the lender gives you a lump sum of cash in exchange for a portion of your future sales or with regular, fixed transfers. This type of loan is helpful if you need cash immediately.

Term Loans: A term loan is a fairly straightforward loan that is set for a specific amount of time (term). They tend to have fixed interest rates or fixed fees.

SBA Small Business Loans Explained

Because SBA loans are guaranteed by the Small Business Administration, a government agency, they often have more flexible limits, interest rates, and payments than traditional bank loans. They’re great for higher-risk individuals and start-ups, but businesses of all types, including retail stores and hotels, can use them. There are several types of SBA loans, but the following are the main ones.

SBA 7(a): These are the most common types of SBA loans. SBA 7(a) loans can be used for up to $5 million with a typical repayment period of up to 25 years, depending on the loan’s use. They can be used for many different purposes, including working capital, construction, renovations, and debt refinancing, but they come with restrictions. With these loans, the SBA guarantees up to 85% of loans up to $150,000 and up to 75% of loans over that amount.

Microloans: These loans are offered up to $50,000 and available through nonprofit community lenders to new and established businesses. These loans can be used for working capital or purchasing inventory, equipment, furniture, supplies, or machinery. Microloans can’t be used to pay existing debts or purchase real estate, and the maximum repayment term is six years.

CDC/504 Loans: These loans provide businesses with long-term, fixed-rate financing for major assets such as real estate and equipment. Backed by both the SBA and a Certified Development Company (CDC), these loans can be used to purchase real estate, machinery, renovations, or to refinance debt. These loans have a maximum of $5.5 million with repayment terms of 10 to 25 years.

Disaster Loans: These are low-interest loans that can be used to repair or replace real estate, equipment, inventory, and other assets that were damaged or destroyed in a declared disaster. The SBA offers disaster loans of up to $2 million to qualified businesses.

How to Qualify for a Small Business Loan

Whether you’re trying to obtain a traditional SBL or one guaranteed by the SBA, there are several things you must do to increase your chances of qualifying for a loan.

Build Personal and Business Credit Scores: You’re likely familiar with the personal FICO credit score, which can range from 300 to 850. If your business is a start-up, your personal credit score will be a large factor in your eligibility for a loan. Established businesses can also have a business credit score, which ranges from 0 to 100. Lenders will take your credit score and credit history into account when you apply for a small business loan.

Know the Lender’s Minimum Requirements: This may seem obvious, but each lender will have their own set of requirements before giving out a small business loan, and SBA loans have strict requirements and strings attached to qualify for one.

Present Financial and Legal Documents: There are several documents needed to obtain a loan: personal and business income tax returns, income and bank statements, personal identification, your business license, proof of a strong cash flow, and even your resume. There may be other legal documents you need to bring depending on your type of business; be sure to have everything prepared in advance.

Have a Strong Business Plan: Lenders will want to know how you plan to use the money and see that you have a strong ability to repay. Your business plan should include a complete set of projected financial statements, including a profit and loss statement, an in-depth projected financial statement, and a cash flow and balance sheet.

Offer Collateral: Collateral acts as added security and eases the lender’s concern of losing money. It can be real estate, equipment, inventory, or other assets. Not all lenders require collateral, but it can help secure the loan if there are other concerns with the application.

Secure a Small Business Loan From PRC Small Business Loans

The finance experts at PRC Small Business Loans can provide advice on the best type of small business loan for your interests and then help you secure it. We are a direct nationwide lender that underwrites commercial real estate loans in-house, and we have ample experience with all types of small business loans, including SBA 504, SBA 7(a), and thousands of others. To speak with an advisor, call 877-350-9416 today.

The U.S. Small Business Administration (SBA) says that eligibility for their loans is “based on what a business does to receive its income, the character of its ownership, and where the business operates.” But that doesn’t clearly explain how to qualify for a small business loan. What’s more, SBA loans are not the only option available.

In this post, we’ll delve deeper into what steps small business owners can take to qualify for loans. We’ll also cover various borrowing options.

How to Qualify for a Small Business Loan Checklist

Before You Get Started

There’s no point in applying for small business loans if you don’t meet certain common requirements:

• Most lenders will require that you have been in business for at least one year, if not two. If this isn’t the case for you, you’ll need to narrow your search to lenders providing funding to early-stage startups.
• Lenders also typically set a cap on number of employees or revenue. This helps define and qualify a business as a small business. Depending on industry and lender, this cap can range anywhere from 250 employees to 1,500, and from $750,000 to $38.5 million in average annual receipts. Look up your industry and make sure your business hasn’t already grown too big.
• You’ll need a good credit score. Small business loan providers will want to know your personal credit score and business credit score. Traditional bank loans and SBA loans in particular require high credit scores, while other lenders may be more lenient. If your credit score is low, check it for errors and dispute it if you find any. It is possible to get your score modified before you start applying for loans.

Narrow Down Funding Details with a Business Plan

Before applying for any type of loan, it’s important to be clear about exactly what you need the funding for, how much you need, and how you’ll pay it back. If you don’t have a business plan already, this is the perfect time to make one. Small business loan providers will likely ask for a business plan as part of the application process. Creating one now will only help.

Writing a strong business plan doesn’t have to be difficult. Lenders simply want to see how you plan to be profitable and ensure they’ll be paid back for the loan. To do this, your business plan should include current and projected financials, cash flow, and business expenses. It should demonstrate the ability to make loan payments given all these factors.

A business plan should distinctly lay out what funding will be used for. This is helpful both for you and lenders. Depending on what the funds are used for, different loans are available. From commercial real estate to cash advances, and equipment loans to crowdfunding, there’s a loan for every need.

Once you have an understanding of how much funding you need and how you’ll pay it back, it’s time to start gathering documents, searching, and applying.

Typical Small Business Loan Qualifications and Considerations

Besides a good credit score and a plan to pay off the loan, lenders tend to look for a net operating income that is greater than 125% of a business’ expenses. They’ll also look at your personal debt-to-income ratio, typically preferring borrowers with a ratio of less than 50%. A balance sheet showing business assets, liabilities, and equity can help build lender confidence.

Small business loans often also require healthy cash flow. If your business is struggling with cash flow due to unpaid invoices, consider invoice factoring or accounts receivable financing, where a third-party lender buys unpaid invoices to help a business continue operating.

Depending on your financial history and business track record, lenders may require collateral. This can take the form of commercial real estate, inventory, or equipment. If a borrower fails to make payments, collateral can be seized by the lender. In the case of a business owner without sufficient collateral, or one who doesn’t want to put up any business assets, some lenders may accept a personal guarantee. A personal guarantee puts a business owner’s personal credit score and assets on the line.

SBA loans require both collateral and a personal guarantee from business owners. For borrowers lacking collateral and wary of personal guarantees, unsecured business loans are another option to consider.

Potential Roadblocks to Qualifying for a Small Business Loan

It’s possible to do everything right, and still come up short. In the case of small business loans, there are a few things that can put a hiccup in the qualification process.

Bankruptcies, for example, don’t look good to a lender. The same goes for other past financial delinquencies. It may take a little extra effort to convince loan providers that you can appropriately manage debt if these are on your record.

SBA loans have additional requirements, such as being current on all government loans with no past defaults. This includes federal student loans and government-backed mortgages. Online small business loans may be more forgiving of bankruptcy. These loans, however, are often more expensive.

Some lenders can be picky about the types of business they will lend to. Socially stigmatized businesses, such as those operating in the sale of alcohol, marijuana, or sexual health products and services, receive higher rates of loan application rejection. If this applies to your business, you may need to do a little extra research to find lenders known for supporting these industries.

Qualify for a Small Business Loan with PRC Small Business Loans

Reach out to our financial experts at PRC Small Business Loans today to get qualified for all government secured loans from $1-$30 million. We can help small business owners nationwide with SBA loans for all commercial real estate. The PRC Small Business Lending Group specializes in helping small business owners own real estate without sacrificing the things that are most important to them. Call 877-350-9416 to speak to a financial expert.

Small businesses have many decisions to make, especially about the commercial property where they plan to operate.

Whether a store, restaurant, gas station, medical office, or something else, there’s one very important question business owners must ask about how they’ll acquire their commercial property:
“Own, or lease?”

Commercial real estate ownership is a great investment. However, it takes time, research, and planning to do it right. It’s more complex than buying a home. If done correctly, though, it can build equity, make expenses more predictable, and even provide tax advantages.

What’s more, owning a commercial property affords much more control over the space than leasing. This may be one of the biggest advantages for small business owners who know how to best leverage that control.

Every business is different, so owning may not be right for each one. For many, however, it’s the better option.

Which small businesses benefit from owning commercial property?

There are some small businesses which are in an especially good position for commercial property ownership:

Small businesses seeking property flexibility. When you own a property, it can easily be converted (within zoning restrictions) if the needs of a business evolve. A growing business’ storefront may become office space if a better storefront location becomes available. If remote work becomes a viable option for team members, that office may then become storage. When leasing a property, these conversions must be negotiated, if allowed at all.

Small businesses interested in having tenants. If a small business owner is willing to manage leasing unused space to tenants, the added revenue can help cover costs associated with owning and maintaining the property.

Handy businesses. A small business able to perform some maintenance and upkeep, rather than hiring or contracting that work out, is also in a good place to consider buying. A plumbing business, for example, will likely never have to hire someone to work on plumbing issues in the building. That’s a big cost-saver that would be a part of rent or fees if leasing commercial property.

Small businesses at least 3 years old. If your business is at least three years old, will occupy at least 51% of the building, and you have a credit score above 675, you might be able to benefit from SBA financing. This can be another helpful cost-saver for property owners.

Businesses in it for the long haul. Buying a location is an especially good choice if you plan to keep running your business on the property long-term. If you expect your business to be around ten years from now, buying may be for you.

Advantages Of Owning Vs Leasing Small Business Commercial Property PRC Small Business Loans

There are a number of advantages to owning rather than leasing a commercial property as a small business. Some of the biggest are:

Fixed Cost. Commercial property owners have the right to raise rent and fees on their tenants. The amount they can raise rent, and how often, is determined by laws. When a small business owns their property, however, the mortgage is a fixed expense month after month, year after year. This means that as a business grows, the cost of the property has less impact—and negligible impact once paid off completely!

Tax Breaks. With the help of an accountant, owning commercial property can result in various tax breaks. The costs of owning and running a small business are recognizable deductions. Mortgage interest and property taxes could be lowered due to your hard work.

When calculating tax payments, your accountant will look at interest and depreciation expenses, as well as non-mortgage related expenses to get you as many breaks as possible.

Equity & Appreciation. As with home ownership, owning provides the benefits of equity and appreciation which leasing lacks. If you ever sell or refinance your property after making timely loan payments, and the property has gone up in value, you will make a gain. Owning also adds to your business’ overall worth. When you lease, you have no equity, and cannot sell or refinance the property for a gain.

More Control. Want to renovate? Planning on holding a potentially large event? When you own a commercial property, there’s no need to worry about a negotiation process around these and other decisions: just do it! Decisions about signage, business affiliations, or outdoor seating also become much more simplified. The only limit is applicable laws, which affect leased properties as well!

Owning a property means having complete ownership over its appearance. Depending on zoning laws, business owners can tear down and completely rebuild an owned property if desired.

While that’s a big undertaking, smaller steps can be taken to enhance business operations through property improvement. Tailor the space to reflect your values, maintain it well, and earn recognition as a business that takes pride in its appearance and functionality. Keeping the property well-maintained also does wonders for strengthening your investment.

Making the Right Choice for Your Small Business

Of course, making any decision as important as commercial property ownership demands much consideration. Location, parking, zoning, property type, and risk tolerance are all very important factors to think about before making a purchase. You’ll want an accountant, lawyer, mortgage broker, and commercial broker. A well-informed commercial real estate partner can not only help ensure that small business property ownership is right for you, but also smooth over the complex process.

Are you ready to evaluate your ownership options? The PRC Small Business Lending Group specializes in helping small business owners own real estate without sacrificing the things that are most important to them. Call 877-350-9416 to speak to a financial expert.

So, you’ve decided to buy commercial property for your small business. That’s great! There are many benefits to owning rather than leasing, including flexibility, fixed costs, equity, and property control. Now, of course, the question is how to finance your purchase.

If you’re like most small business owners, you don’t have enough cash to purchase a commercial property outright. Even if you do, you may not be in a good position to tie up that liquidity into something like commercial real estate. Or, you may find value in leveraging property. Whatever the case, chances are you’re going to need to weigh borrowing options.

Before you do so, make sure you’ve been profitable for the last two years. Most lenders will want to see this far into your business’ revenue history, so it’s wise to be in good standing. Also make sure you’re being realistic about the property you’re looking to purchase. Consider how big you expect your business to grow in the future, and seek appropriately sized spaces.

Once those steps are complete, it’s time to consider your options:

Which small businesses loans are available for purchasing real estate?

Traditional Bank Loans

Banks have been a source of commercial real estate financing for a very long time. While changes in the market have caused shifts in the process today, traditional bank loans are still a viable borrowing option for many.

For example, if you have a good relationship with your existing bank, that might make them more open to originating a loan. This is especially true if you are able to make a significant down payment. Real estate is a great asset in a bank’s eyes; it’s just a matter of finding borrowers they trust in the current real estate landscape.

Because real estate is a desirable asset, banks can be flexible with underwriting and terms. Still, if the conditions aren’t right, your bank may steer you towards an SBA loan. These lower the bank’s risk.

Small Business Administration (SBA) Loans

When a business gets an SBA loan to purchase commercial real estate, a portion of the loan is guaranteed by the government. When a bank is involved, the financing comes in the form of a 504 loan. This loan means the bank loans 50% of the purchase price and the government loans 40%. There is also a 7(a) loan, in which the government lends 90% of the price, and no bank is involved.

Both of these scenarios require only a very small down payment of 10%. They also have low fixed interest rates and other benefits. For example, the 7(a) loan is a general purpose loan that also covers repairing commercial property., and thousands of options25 years and fixed rates ranging from 7% to 9.5%, it’s certainly competitive against bank lenders. As for the 504 loan, expect big savings and the ability to purchase and upgrade real estate and business equipment. The 504 term is 20 to 25 years, with fixed rates as low as 5%, making it a highly desirable option.

Qualifying for an SBA loan is tough, and not everyone makes the cut. In fact, for many small businesses, the requirements to remain in good standing under an SBA loan can prove too risky or financially restrictive.

Commercial Lenders

Banks and the government are far from the only sources of commercial lending. Finance companies such as PRC, for example, are happy to work with small businesses to create real estate loans that work for everyone.

While rates can be higher through these lenders, there are many benefits. Flexible underwriting, fast approval, and lower fees and closing costs are just a few. Unlike banks, commercial lenders also have many sources of capital. Their often extensive network of financial partners, including banks, also means that they can offer multiple types of financing, and tailor a loan to each small business owner’s needs. Commercial lenders can even assist with SBA 7(a) loans!

Other financing options through commercial lenders include CMBS loans, bond financing, insurance company loans, and more. For many borrowers, the diverse options mean buyers are able to reap desired benefits such as non-recourse loans and flexible terms based on good credit and low leverage. Additionally, the experts at commercial lending institutions are well-versed in reading the current market and helping borrowers tease out the best balance of financial sourcing.

Qualifying for a small business loan can be overwhelming. The PRC Small Business Loan Team specializes in quickly identifying the best possible options for you and your small business. Call 877-350-9416 to speak to a financial expert.