A microloan could be the answer for borrowers who have been turned down by traditional banks.
It’s true that it’s easier to get a bank loan to buy a franchise than it is to start your own business, but that doesn’t mean it’s easy - especially if you have less-than-perfect credit. But for potential franchisees who been turned down by traditional banks, a microloan could be the answer.
Microloans are designed for borrowers who would be otherwise ‘unbankable,’ with more flexible terms and eligibility requirements than either a conventional bank loan or a 7(a) loan backed by a Small Business Administration (SBA) guaranty. The only catch is that microlenders charge above-market interest rates, typically between 8% and 16%, to compensate for the additional risk involved.
While the $35,000 to $50,000 available through a microlender wouldn’t be nearly enough cash to finance a capital-intensive franchise like a hotel or a retail store, it’s within reach of the initial investment required for many home-based or service-oriented franchises. To find out more about landing a microloan for a franchise, BusinessWeek.com spoke to Lori Kravets, executive director of the Growth Opportunity Connection in Kansas City, Mo., a nonprofit contractor in the SBA’s microloan program that also administers several regional and local loan programs. Edited excerpts of the conversation follow.
Who is a good candidate for a microloan program? Carry on reading…
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