As an All About Kids franchisee, you will have the option to lease or purchase the land and building where your All About Kids center will operate. While the All About Kids corporate team will provide hands-on support to help you choose the ideal option based on your available cash, net worth, and goals, we want to use this post to provide an overview of the two options for getting a small business loan:
Leasing a Building Through the 7(a) Loan Program
Both of the loan options we’re going to cover are available through the US Small Business Administration. The first is a 7(a) Loan. This is the SBA’s primary program for helping start-up and existing small businesses. It’s ideal if your goal is to lease the building for your All About Kids center and only own the business.
Through this program, the SBA doesn’t actually make any loans. Instead, it guarantees loans made by participating lending institutions. Some of the benefits of this program include rates and fees that are generally comparable to non-guaranteed loans, lower down payments flexible overhead requirements and no collateral needed for some loans.
The general terms for this type of loan are the SBA will guarantee a maximum of 85 percent of loans up to $150,000 and 75 percent on loans higher than $150,000. It will not guarantee more than $3.75 million. The SBA assesses a guarantee fee that is charged to the lender. The lender may choose to pass those fees on to the applicant at closing. That fee is between 3 and 3.5 percent, with an additional 0.25 percent for loans over $1 million.
The five standards lenders use to judge eligibility for this type of loan are equity investment, earnings, working capital, collateral and resource management.
Buying Land and a Building with a 504 Loan
The other option for getting a small business loan is the SBA’s 504 Loan Program. This is ideal if you want to own the land, building, and business as an All About Kids franchisee. Unlike a 7(a) Loan, the SBA directly contributes to a 504 Loan. The typical structure for this type of loan is the SBA provides 40% of the total project costs. Then a participating lender covers up to 50% of the total project costs, and you will be responsible for 10% of the project costs.
Under certain circumstances, you may be required to contribute up to 20% of the total project costs. Personal guarantees from owners of 20% or more are also required. Benefits of using the 504 Loan Program to buy the land and building for your franchise include up to 90% financing, longer loan amortizations, no balloon payments and fixed interest rates.
For even more information about owning an All About Kids Child Care and Learning Center franchise, use our online franchise information form to request more information.