Evaluating & Buying a Franchise

How Good is My Credit?

What Are the Costs of Franchising?

Will it Affect My Chances of Getting a Franchise Loan?

Bad credit affects many people, especially those looking to make an important investment such as a franchise. For the responsible entrepreneur, finding out right away how far their credit will get them is a very important step to take. That's because, while many companies wish to promote their prospective franchisees' future success in every way possible, they need to gather all the facts about someone's credit history. It is only in this way that they will be able to fully assist the prospective franchisee who may have a questionable credit history.

While it is possible that someone with imperfect credit could go through with a franchise purchase, many find it necessary to reach a clear level of understanding as to how serious one's credit problem really is. There are certain credit problems that might get in the way of a franchise investment. While reviewing one's record, however, it is important to remember that there are often ways to iron out past credit problems.

While having filed bankruptcy in the past is often the equivalent to flashing red warning signals at the franchisor's company, be aware that not all bankruptcies are the same. If the problem occurred more than seven years ago then, yes, it will most likely still be found out - but another thing that should show up is a record of one's clean financial history since the time of bankruptcy. Although still going in with a disadvantage, it is always helpful to demonstrate a conscientious and successful effort towards fiscal restoration. More recent bankruptcies, however, would be harder to get around when applying for the various loans and lines of credit that go along with starting up a franchise.

There are many other ways of developing unsatisfactory credit, and it needs to be understood that bad marks on a credit report can indeed affect one's chances of getting in with a franchise company. Many times they are overlooked, it is important to know why bad credit harms one's chances of acceptance.

First of all, it is likely that the entrepreneur doesn't have the up-front cash that's required to start up a franchise. If this is the case, he or she will need to take out a loan from the bank as well as open up multiple credit lines to maintain the general functioning of the establishment. In addition, credit lines with various vendors will need to be set up - something which also requires a fair level of good credit. Demonstrating reliability and good credit - or sometimes, hopefully, a good explanation - will be crucial to any business person's chances of success.

Another area of concern is the franchise site location. In numerous cases, franchisees are required to lease the building and property for their stores or restaurants, and in order to go through with this agreement, an acceptable credit history must be presented. Landowners want to see that the person leasing their space is actually able to make the payments for the duration of the lease, and for this they need an assurance of financial stability from the tenant in addition to the credit report that they will inevitably run.

Obviously, one's credit history is an important factor in the decision making process for many institutions that are essential to the franchisee's new business. That's why franchisors take this so seriously. The most well run companies in the franchising business will probably do their best to give the investor the benefit of the doubt - they want to make sure that their franchisees succeed - but when it comes down to selecting a certain entrepreneur, credit history matters.

Fortunately, the better franchise establishments will take into account that small blips on one's record that occurred a few years ago - five or six, realistically speaking - should not even show up on the radar for most landlords, vendors and banks. Of course, they will be seen by these institutions, but their importance will not be inflated, especially if one can demonstrate substantial rehabilitation since then. Regretfully, larger blemishes that have occurred more recently are likely to jeopardize one's chances of getting approved by a franchise.

What's important to remember here is that it is quite possible for one to become a franchisee even if his or her credit record is not pristine. That said, it is a good idea to fully disclose all of one's credit problems right away in order to avoid confusion and disappointment further on down the road.