One of the most difficult aspects of starting any kind of small business is financing the original purchase. As the Wall Street Journal reports, the financing process for a franchise has its own system, and potential owners should be prepared.

Much of franchise financing is done by commercial banks, which will likely ask potential owners to put about 20 percent down, according to the Journal. Banks also look more favorably on franchises with a recognizable name and solid track record. Banks are also generally more willing to lend to a customer with whom they've had a banking relationship in the past. Loans backed by the U.S. Small Business Administration are also an option if the bank rejects an initial application.

Some franchise owners also use their retirement plans - like a 401(k) - to help in their small business opportunity, but the Journal reports that tapping into those accounts can often have tax implications if money is withdrawn early.

Banks have increasingly turned to SBA-backed loans to reduce their risk, particularly because the recovery act has allowed the SBA to guarantee 90 percent of the loan - thereby reducing risk. The Boston Globe recently reported that SBA loans in Massachusetts had doubled compared to figures from a year ago.




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