According to data published by the Wall Street Journal last week, the franchise Cold Stone Creamery defaulted on 29% of working capital loans backed by the government, impacting taxpayers by millions. Quiznos' default rate was 30%, while the company filed for bankruptcy in March. Yet both brands remain eligible for SBA-backed loans. Why?
"The SBA continued to guarantee loans to high-risk franchises and industries without monitoring risks." This from the SBAs inspector general. If it weren't for the government's backing, banks would never have made those loans.
Result is 26 SBA-backed loans since 2012 for $2.3 million for Cold Stone Creamery and Quiznos; a debt burden on the whole SBA loan program and the taxpayers of this country. Entrepreneurs and government entities should be looking at ways to avoid this situation, for the health of small business and to avoid taxpayer waste.
Buyers should do their due diligence. Franchises don't by law have to disclose default rates or average first year revenues. Research first!
Greater SBA monitoring of franchise loans is crucial. Franchise loans make up less than 10% of SBAs program, going under the radar. Listing this as a solution is somewhat like throwing loan applications into a windstorm, since the general population has little control over SBA loan programs, however awareness is a step in the right direction.
Alternative Funding is making a surge for good reason. While it's difficult to be considered for a traditional loan, certain loans are guaranteed by the government simply because the business is rolled into a franchise. Whether you're working with an established franchise or you're investing in your own start-up, merchant cash advance or other means of alternative funding are viable options to put cash in your corner, faster. While traditional loans default, cash advance allows for repayment in small amounts over time based on future earnings.
Research is vital for any business. What is expected return on investment? How has a franchise performed for more than one year? How is the marketplace in your industry and what cash flow is necessary for you to reach your capacity? What is the best way to secure funds to keep your business running?
For more information on alternative funding, contact Bizlender to talk to a professional today. Apply online or call 855-404-3070.
Alternative funding helps many businesses find success. Read customer testimonials, and talk to us about the programs and possibilities available through a merchant cash advance. Call Bizlender at 855-404-3070.
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Bizlender offers alternative funding solutions for established businesses.