Does Bad Credit Hurt Your Chances of Getting a Franchise?

When you apply to obtain a franchise, the corporate leaders will consider your financial wherewithal a foremost priority. They want to know you have the ability to manage the income of the business, have additional resources should the business require more funding, and most importantly, will not allow the franchise to fail if it is not immediately profitable. Remember: the franchise owners are maintaining a reputation, and your store will have a direct impact on that reputation. As a result, bad credit can certainly hurt your chances of being awarded a franchise.

Obtaining the Franchise

The first roadblock you may face comes when you apply for the franchise itself. The franchise owners will review your records of successfully repaying debt and managing your money. They will be primarily concerned with any record you have as a business owner. However, it is certainly possible your personal credit report will be run when a franchise is determining your financial sensibility. The more capital you can bring to the table, the better, and the higher your ability to secure additional funding, the better. Bad credit can hurt both of these items.

Initial Loan and Funding

If the franchise would like to work with you despite your credit, you will likely need to get a small business loan to help you purchase your franchise. The initial cost of purchasing a franchise can range from tens of thousands to several million dollars. As a result, many franchisees do take loans. If you cannot come up with the money to purchase the franchise, you will not be awarded the business. Your bad credit can affect your ability to secure a small business loan.

Obtaining a Lease for Retail Space

You will need to obtain a lease for retail space to operate your franchise. Many franchises will ask you to obtain this lease before you are officially awarded the business. When a commercial property manager views your application for a lease, the manager will consider several factors to determine if you will be able to pay your rent each month. First, the viability of your business or business model will be taken into consideration. Purchasing a well-known franchise will help with this portion. However, your personal record in making monthly installment payments will also be weighed heavily. If a commercial leasing agent has reason to believe you will not make rent, that agent will not issue you the lease. This can be cause for denial of your franchise opportunity.

Buying on Credit

The final step in operating a successful franchise is purchasing the materials necessary to get started. Often, business owners in this capacity use trade credit programs. They purchase raw materials on credit, and they repay the vendors once they have turned a profit from the sale of those materials. Unfortunately, if you have bad credit, your vendors may be unwilling to work with you in a trade credit arrangement. This can create large difficulties in sourcing the materials necessary to get your business up and running.

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