How to Secure Big Business Loans for Franchise Expansion in the Philippines

If you’re an owner of a successful franchise business in the Philippines, you may be considering franchise expansion to capitalize on the growing demand for your products or services. 

But the truth is, becoming a multi-unit franchisee requires a substantial amount of capital, and securing a big business loan can be challenging.

Understanding the intricacies of the loan application process is vital for securing the funding you need for franchise expansion. In this article, we will provide valuable insights and practical tips to help you navigate the loan application process and secure big business loans for franchise expansion.

Evaluating the Need for a Business Loan

Business loans are not a one-size-fits-all solution. Before applying for a loan, it’s important to evaluate your business’s financial situation and determine if a loan is the best option for your business expansion. Take a look at how you can ensure a business loan is for you. 

Step 1: Understanding the cost of franchise expansion

Franchise expansion can be a costly endeavor, and understanding the expenses involved is crucial when evaluating the need for a business loan.

You’ll need to determine the cost of securing additional franchise locations, hiring additional staff, purchasing equipment and inventory, and any other expenses associated with expanding your business.

Create a detailed budget to ensure that you have a clear understanding of the financial requirements for franchise expansion. This will not only help you determine if a business loan is necessary but will also aid in determining the loan amount required.

Step 2: Analyzing the financial capacity of the business for franchise expansion

Once you’ve determined the cost of franchise expansion, the next step is to analyze your business’s financial capacity to handle the loan repayments. This includes assessing your business’s current revenue, profitability, and cash flow.

Lenders will evaluate your business’s financial statements, including balance sheets, income statements, and cash flow statements, to determine your ability to repay the loan. 

It’s crucial to ensure that your financial statements are accurate and up-to-date, as any discrepancies may result in loan rejection.

Step 3: Establishing the benefits versus risks of obtaining a substantial loan

While a loan can provide access to the necessary capital for growth, it also comes with risks. On one hand, obtaining a substantial loan will enable you to expand your franchise, increase revenue, and boost profitability. 

This, in turn, may allow you to pay off the loan quickly, thereby improving your business’s credit rating and opening up further financing options in the future.

On the other hand, taking on a large amount of debt may put your business at risk if you’re unable to meet the loan repayments. 

If your business experiences a downturn, it may be challenging to maintain the loan repayments which could result in default and damage your credit rating.

Funding Options for Franchising in the Philippines

Once you’ve evaluated the need for a business loan and established the benefits and risks, it’s time to explore funding options. Here are some of the most common funding options for franchise expansion.

Traditional bank loans

Traditional bank loans are one of the most common funding options for franchise expansion. 

These loans typically offer lower interest rates and longer repayment periods than other lending options. However, they also have strict eligibility requirements, including a strong credit rating, collateral, and a solid business plan.

Keep in mind that these loans require a lot of paperwork and can take longer to process, making them less ideal for those who need the funding quickly.

Online Business Loans

If you’re in need of faster funding, online business loans may be a viable option. These loans typically have more relaxed eligibility requirements and faster processing times. 

However, they may also come with higher interest rates and shorter repayment periods.

When considering online business loans, it’s important to thoroughly research the lender and read the loan terms and conditions carefully. 

A popular choice for an online business loan in the Philippines is the Tonik Big Loan. Offering amounts up to P5 million, it provides flexible repayment terms over a period of up to five years.

Private lenders and investors

Private lenders and investors can also provide funding for franchise expansion. These options may offer more flexibility in terms of eligibility requirements and repayment terms. 

However, private lenders and investors may also require a higher interest rate and may demand a percentage of ownership in your business.

Where to find private lenders and investors in the Philippines: 

• SeedIn: A P2P business financing platform
• Angel Investment Network PH: A platform that connects angel investors with local
• Blend PH: A P2P lending platform that also offers franchise loans up to P2,000,000 

Factors to Consider Before Applying for Business Loans

When securing a loan for franchise expansion, it’s important to assess the interest rates, repayment schedules, and other loan terms.

Interest rates can vary greatly depending on the lender and the type of loan you’re applying for. Make sure to compare rates from different lenders to ensure you’re getting the best deal.

Repayment schedules can also vary, with some loans requiring weekly or monthly payments and others allowing for quarterly or annual payments. As much as you can, choose a repayment schedule that fits your business’s cash flow.

Make sure to read the loan agreement carefully and ask questions if you’re unclear about any terms, fees, or other charges.

Collateral is the asset that the lender holds as security in case the borrower defaults on the loan. Collateral can be in the form of real estate, equipment, vehicles, or any other valuable asset that the lender agrees to accept.

If the borrower defaults on the loan, the lender can seize the collateral and liquidate it to recover the loan amount. This could result in the borrower losing their valuable assets, which could have severe consequences for their business.

Credit scores and financial history play a crucial role in securing business loans, regardless of the loan amount.

A good credit score and a positive financial history increase the chances of securing a loan with favorable terms and conditions. This includes lower interest rates, longer repayment periods, and a higher loan amount.

On the other hand, a poor credit score and a negative financial history may result in higher interest rates, shorter repayment periods, and stricter eligibility requirements. 

How to Secure a Business Loan in the Philippines

Here are some steps to follow when securing a loan for franchise expansion.

Step 1: Preparing a compelling business plan for lenders

To prepare a compelling business plan for lenders, it’s important to focus on two key elements: clear information and persuasiveness.

Start by conducting comprehensive market research to understand your target market, industry trends, and competitors. This will provide the foundation for your plan.

Next, clearly outline your business model, unique value proposition, and revenue generation strategies.

You must also present a well-defined marketing and sales strategy that demonstrates how you will attract and retain customers. 

Additionally, include a detailed financial analysis, including realistic projections and a solid understanding of your expenses, revenues, and profitability. Prove to lenders that you have a clear understanding of your financials and provide evidence of your ability to generate returns.

Next, make your plan persuasive by highlighting your team’s expertise, relevant industry experience, and track record of success. Showcase the strengths of your management team and their roles in driving the company’s growth.

Your business plan should also address potential risks and challenges, and present robust mitigation strategies. Lenders want to see that you have considered potential obstacles and have a plan to overcome them.

Finally, use a professional and engaging writing style to communicate your ideas effectively. Keep your plan concise and to the point while ensuring all necessary information is included. A well-structured, thorough, and persuasive business plan will greatly enhance your chances of securing funding from lenders. 

Step 2: Negotiate with potential lenders

Negotiation will enable you to secure the most favorable terms and conditions for your business loan.

We’ve compiled some effective strategies to enable you to secure favorable terms.

Shop around

Don’t be afraid to approach multiple lenders to get a sense of what’s available in the market. This will give you leverage when negotiating with each lender, as you’ll be able to compare rates and terms across different offers.

Be prepared

One of the most effective negotiation strategies is to thoroughly prepare yourself with relevant information and data.

Understand your financial needs, repayment capabilities, and market conditions. Research and compare different lenders to identify their lending criteria, interest rates, and terms. 

This knowledge will allow you to present a well-informed and compelling case during negotiations. Be ready to demonstrate your business’s strengths, growth potential, and how the loan will be utilized for mutual benefit. 

Additionally, anticipate potential objections or concerns the lender may have and prepare strong counterarguments to address them. 

Be confident

Adopt a win-win mindset during negotiations to create mutually beneficial outcomes. Seek to understand the lender’s goals and priorities while advocating for your own interests.

It’s also recommended to identify common ground and explore creative solutions that can meet both parties’ needs.

Furthermore, be open to alternative loan structures, repayment schedules, or collateral arrangements that can mitigate risk for the lender while providing flexibility for your business.

Be prepared to walk away

In some cases, it may be necessary to walk away from a loan negotiation if the terms and conditions are unfavorable or the lender is unwilling to budge on certain points.

It’s important to remember that securing a loan is not the end-all-be-all for your business and that there are other options available.

Walking away from a deal that doesn’t meet your needs or expectations can also demonstrate to potential lenders that you are a savvy business owner who is committed to making sound financial decisions. 

Step 3: Complete the loan application process

Once you have secured a lender and negotiated favorable terms, it’s time to complete the loan application process. 

Review the lender’s application requirements

Each lender may have different application requirements, so it’s important to review them carefully and ensure you have everything you need. 

Gather the necessary documents and information

Collect all relevant financial and legal documents, including tax returns, bank statements, and business licenses. Be sure to provide accurate and up-to-date information to avoid delays in the application 

Fill out the application completely

Complete the application thoroughly and accurately, ensuring that all required fields are filled in. Double-check your work for errors or omissions before submitting it.

Provide additional information if needed

Be prepared to provide additional information or documentation if the lender requests it. 

Don’t forget to respond to any requests in a timely manner and provide the information requested as quickly as possible.

Review and sign the loan agreement

Once your application has been approved, carefully review the loan agreement to ensure that you understand the terms and conditions of the loan. 

If you have any questions or concerns, don’t hesitate to ask the lender for clarification. Once you are comfortable with the terms, sign the agreement and return it to the lender. 

Disbursement of funds

Once the loan agreement has been signed, the lender will disburse the funds to your business account. Be sure to use the funds as agreed and make timely repayments to maintain a positive relationship with the lender.

Ongoing communication

Maintain open lines of communication with your lender throughout the loan term. If any issues or concerns arise, address them as soon as possible to prevent them from escalating. 

Additionally, keep the lender informed of any changes to your business that may impact your ability to repay the loan. 

Strategies for Improving Loan Approval Chances

While every lender has their own specific criteria for approving loans, there are several strategies you can use to improve your chances of getting approved.

Improve your credit score

One of the most important factors that lenders consider when approving loans is your credit score. A higher credit score demonstrates to lenders that you are a responsible borrower who is likely to repay the loan in full and on time. 

To improve your credit score, pay all of your bills on time, keep your credit card balances low, and avoid opening new credit accounts unnecessarily.

Increase your revenue and profitability

Lenders want to see that your business is generating enough income to repay the loan. Increasing your revenue and profitability can help demonstrate your financial stability and ability to repay the loan.

Consider implementing strategies such as expanding your product or service offerings, improving your marketing and sales efforts, or cutting unnecessary expenses to boost your bottom line.

Provide collateral

Providing collateral can help mitigate the lender’s risk and increase your chances of loan approval. 

Collateral can come in many forms, such as business assets, inventory, or personal assets. Be sure to only offer collateral that you are comfortable losing in the event of loan default.

Ensuring Effective Utilization of Acquired Loans

After acquiring a loan, it’s crucial to ensure that the funds are used effectively to achieve the intended goals and maximize the benefits of the loan.

Effective financial management practices

Effective financial management practices are crucial for ensuring the appropriate utilization of the acquired loan.

These practices include creating a detailed budget plan, tracking expenses, and regularly reviewing financial statements to monitor the progress of your business and make informed decisions.

Monitoring and controlling loan expenditure

To ensure that the loan funds are used effectively, it’s essential to monitor and control loan expenditures.

This involves creating a budget plan that outlines how the loan funds will be used, and regularly tracking expenses to ensure that they align with the budget plan.

Avoid using the loan funds for unnecessary expenses or non-business-related purchases. Regularly reviewing financial statements can also help identify any areas where expenses can be adjusted.

Investing in high-return areas of the business

This means identifying areas of the business where additional funds can have the greatest impact on revenue and profitability.

For example, investing in marketing and advertising can help attract new customers and increase sales. 

Investing in research and development can help improve product or service offerings, leading to increased customer satisfaction and loyalty.

Avoiding common pitfalls and challenges in loan utilization

Some common pitfalls and challenges to avoid when utilizing a loan include overspending, failing to track expenses, and not having a clear plan for how the loan funds will be used. 

Strategies for Efficient Business Loan Repayment

We’ve gathered some strategies that can help you efficiently repay your business loan and maintain a positive relationship with your lender.

Understanding the loan repayment terms

The loan repayment terms include the interest rate, repayment schedule, and any fees or penalties that may be incurred for late payments or early repayment.

Understanding these terms will help you plan your budget and ensure that you make your loan payments on time and in full.

Setting up a realistic and manageable repayment schedule

Setting up a realistic and manageable repayment schedule is crucial for efficient loan repayment. This involves creating a repayment plan that aligns with your business’s financial goals and cash flow. 

Consider factors such as revenue and expenses, seasonal fluctuations, and unexpected expenses when creating your repayment schedule.

Techniques to avoid defaulting the loan

Defaulting on a business loan can have serious consequences, such as damage to your credit score and legal action taken by the lender. Here are some techniques to avoid defaulting on your loan.

Prioritize loan payments

Make loan payments a top priority in your budget plan, even if it means cutting back on other expenses. 

Late or missed payments can result in fees and penalties that can make it harder to catch up on repayments.

Communicate with your lender

If you anticipate difficulty making a loan payment, it’s important to communicate with your lender as soon as possible. 

They may be able to offer solutions such as restructuring the loan or adjusting the repayment schedule to better align with your cash flow.

Refinance the loan

If you are struggling to make loan payments, refinancing the loan may be a viable option. Refinancing can help reduce the interest rate and lower monthly payments, making it easier to manage repayments.

Opportunities to reduce the burden of interest rates

Reducing the burden of interest rates can help make loan repayment more manageable and increase your business’s overall financial stability. Here are some opportunities to consider:

Consolidate debt

If your business has multiple loans with high-interest rates, consolidating them into a single loan with a lower interest rate can help reduce the overall burden of interest.

Negotiate with your lender

If you have a good relationship with your lender and a strong repayment history, they may be willing to negotiate a lower interest rate or waive certain fees.

Pay more than the minimum payment

Making larger payments than the minimum required can help reduce the total amount of interest paid over the life of the loan. However, you may be burdened with prepayment penalties.

Final Thoughts

Securing big business loans for franchise expansion in the Philippines requires a strategic and diligent approach. 

As the franchise industry continues to thrive in the country, entrepreneurs seeking substantial financing must navigate the process with careful consideration. By following the few key steps and tips listed above, business owners like you can increase their chances of securing the necessary funds.