Wednesday, April 07, 2010
Various Franchise Financing Options exist and the following table compares each option. Side-by-side comparisons for Small Business Administration programs; Micro loan, 504, Patriot Express and 7(a). Also, compare the differences in Home Equity financing verses using a 401(k) Conversion. While everyone has unique requirements and circumstances, this chart will lay out the option in a non-biased format.
| Option | Definition | Cost | Rate | Time Frame | Credit Score | Loan Amount |
| Home Equity | Utilize the equity in your home. Home value must be more than what you owe. | Varies by institution; the line is variable rate / the loan is a fixed rate. | Typically Prime Rate plus points, based on credit score/your income. | 4 - 6 week estimate. | 700+ | 80% of the appraised home value. |
| SBA Micro Loan | Small Business Administration loan processed in a short time-frame. Simplest loan for start-ups. Used for inventory, supplies, furniture and technical assistance. | Under $500. | Prime rate plus 4%. | SBA decision within 36 hours, funding within 3 weeks. | 680+ | Up to $25K maximum. |
| SBA 504 (Working Capital is excluded) | Small Business Administration. Long-term, fixed rate financing to acquire real estate and equipment. Monies must be used to create jobs. Delivered by CDC's to contribute to the economic development of their communities; there are 270 CDC's nationwide. | Fees total approximately 3% of the debenture and may be financed with the loan. | Based off 10-year U.S. Treasury Issues. | SBA decision varies. | 700+; The personal owners must personally guarantee the loan. | $2M, depending on job creation criteria being met. |
| SBA 7(a) Most common funding (Includes working capital) | Small Business Administration. Alternative lending channel. They are usually applicable to service industries, retail trade, food services, construction and manufacturing. | 2% to 3.75%; Repayment is up to 25 years for real estate and machinery. Repayment for working capital is 5 - 10 years. | Prime rate plus 1% to 2.75% and the loan is variable/or fixed. Plus, there is a lender's fee of 0.550%. | SBA decision varies. | 700+ | $2M |
| SBA Patriot Express Loan | SBA backed program for veterans and members of the military community; | Not stated, however, it is the least expensive of the SBA Lending. | Negotiable, Lowest rates under SBA guidelines; Up to Prime plus 2.25% for loans under 7 years, up to Prime plus 4.75% for loans over 7 years. 1% rate premium for loans under $50K, 2% rate premium for loans under $25K. | SBA decision varies. | Credit scores are more lenient. | $500K |
| Conventional Business Loans | Traditional bank lending. Collateral required. | Various closing costs; generally 1% to 2% closing costs, plus an application fee, generally under $500. | Collateral and Credit worthiness based. | Varies by institution. | 700+ | No limit. |
| 401(k) Conversion | Utilize retirement funds to invest in business without any penalties. Third Party Administrator, TPA's, are needed to administer the distributions from the conversion. | $5295 plus quarterly TPA costs of $250 which is included in 1st year. | Market Rate. | 3- 4 weeks. | Not Applicable. | $200K |
| Unsecured Line Of Credit | Credit offered to businesses to improve cash flow. Not always secured by assets. | $2000 consulting fee; plus 10% on all funding, up to $100K. | Prime rate plus 2 points. | 2-8 weeks. | 715+; Limited credit inquiries; No derogatory credit within last 12 months. | Up to $100K. |
For details regarding SBA Lending Programs visit, SBA Financial Assistance.
*This information is provided for comparison purposes only. Figures were collected as of this printing. Please contact individual lenders for most recent terms, rates and restrictions.
Comments
Post has no comments.