If anyone in franchising tells you your low credit score won’t affect your ability to buy a franchise…they’re being dishonest. But why would someone do that?
To give you hope.
And if they happen to be the franchise seller, they don’t want to lose you.
But can you buy a franchise if your credit score is less than average?
What You Need When You Buy A Franchise
When you buy a franchise, you’ll probably need a small business loan. Why?
Because most people don’t pay cash for the required initial investment. They leverage their money through a loan. And small business loans aren’t always easy to get.
One of the things lenders look at to determine if they’ll loan you money for your franchise business is your credit history.
For the purpose of this post, your credit history includes everything you’ve purchased (or leased).
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Mortgages, car loans, student loans, and even your past history of paying your utility bills are scrutinized. And that’s what your credit score is based on. Do you know your credit score?
90% of top lenders use FICO® Scores
Should You Tell Your Franchise Salesperson You Have A Low Credit Score?
You may not like my answer.
It’s up to you.
If it was me, I’d hold off on disclosing any credit issues you may have. Why?
Because the franchisor isn’t in the business of loaning money.
Do this instead.
From Franchise Direct:
To show the franchisor that you’re able to get a loan and establish your physical roots, it’s a good idea to create a rock solid business plan, and showcase that you’re able to get the financing you need up front. If you’re still not able to get a loan, it’s important that you disclose this to the franchisor. When you’ve done the hard work, there may be other options available outside of traditional financing plans.
With that in mind, don’t put the cart before the horse.
You need to work through the franchise discovery process.
That means gaining a complete understanding of how the franchise works, what your role would be as the franchisee, and if you’d be a good fit.
But since this post is more about low credit scores and how your purchase of a franchise business may be affected, I encourage you to read the Franchise Direct article on credit scores and financing in it’s entirety.
Doing so could save you a lot of time and energy.
After all, you want to be your own boss.