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    2 Replies Latest reply on Jan 23, 2013 7:46 PM by koln123

    Does a business loan count towards net worth?

    koko49 Adventurer

      If I were to open a franchise, I would be required to have a net worth of $1.5 million and liquidity of $750 thousand. Is it possible to get a business loan that would satisfy these requirements? If not, what are some ways to aquire the funds needed to pursue a franchise opportunity?

        • Re: Does a business loan count towards net worth?
          Tran Nguyen Tracker

          Dear Koko,

           

          A bank loan would not count toward your net worth as you would be owing the bank. Your net worth is calculated by taking your (Total Asset - Total Liabilities). So a bank loan wouldn't do anything to help you out in this case.

           

          Liquidity is how much cash you have and/or how fast you can convert your tangible assets into cash.

           

          As for how to get investment in this -- I have honestly never heard of a franchise opportunity that requires such high level of investment. Do you mind if I ask what it is?

           

          I work for several franchise chains and I have never heard of something being that rigid. Most will have an option where you can find investors or take a bank loan out to fund it. But requiring net worth is rather iffy in my opinion.

           

          Tran Nguyen

          Accountant

          • Re: Does a business loan count towards net worth?
            koln123 Tracker

            I concur to what has been said here.  A loan does not and cannot count towards net worth and liquidity because it is owed, especially if it is reported correctly.    If the proceeds are put into an account or a short term certificate of deposit, then they can be correctly listed as on the asset side.   Some of this depends if the loan was in a personal or business name.   If the loan was in a business name and you are a guarantor, then yes the debt needs to be listed on the liability side.   As far as the requirements, I have been in finance since 1989, and though I don't deal with franchises much, the amounts don't surprise me, especially for a large well known franchise.   National doesn't want the buyer to just "barely pass" the financial requirements, they want them to easily pass.   They are aware other things may come up in the life of the buyer that requires liquidity.   Good Luck SBLD