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How Bad Credit Impacts Your Ability to Buy a Franchise

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Bad Credit Impacts Your Ability to Buy a Franchise

 

One of the biggest considerations a franchisor makes when examining a prospective franchisee is how successful that person will be in business. There are many factors that are taken into account when making that decision, and one of them is your personal credit history.

A bad credit score isn’t an automatic denial. It just means that you might have to go to a few more hoops to get through their system and get the franchise of your dreams. Here are a few of the challenges you could encounter along the way that will determine your ability to buy a franchise.

 

You Could Struggle to Get a Loan or Lease

When you buy a franchise, you might need a small business loan to finance your new venture. If you’re not buying a home-based franchise, you might also need a lease for the facility where you set up shop. Getting the loan or a lease could prove difficult if you don’t have good credit.

To show the franchisor that you’re able to get a loan and establish your physical roots, it’s a good idea to create a rock solid business plan, and showcase that you’re able to get the financing you need up front. If you’re still not able to get a loan, it’s important that you disclose this to the franchisor. When you’ve done the hard work, there may be other options available outside of traditional financing plans.

You Might Pay a Higher Interest Rate

Sometimes, a bank will give you the loan you need to finance your franchise, but you might encounter a higher interest rate. In this case, you’ll be required to pay higher monthly payments.

As you evaluate the franchise offer, look closely at what your estimated monthly costs and revenue will be. Although the interest rate and monthly payments might be higher, the investment could still prove profitable in the long run.

You’ll Need a Strong Startup Plan

Some franchises take root and are immediately positioned for success simply because the brand is so well known and the demand is so high. Others take some time to get off the ground.

If you have bad credit, ensure that you’ll be able to meet your monthly payments by evaluating the costs it’ll take to start, as well as how quickly you anticipate making money. To estimate this, it’s a good idea to take a pulse of what’s happening in your target market and talk to other franchisees who have recently bought the same franchise. These insights can help you gauge what to expect so that you avoid falling further into debt or hurting your credit.

Yes, You Can Buy a Franchise With Bad Credit

If you know you have bad credit, you might have to go through a few extra steps to buy your franchise. Still, it’s possible. Bad credit isn’t an automatic denial. By creating a plan and showcasing that plan to the important parties in your franchise ownership, you can set yourself up for success now and long into the future.

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