Franchise Funding Options: Financing Your Dream
There are many factors that can affect your decision to buy a franchise. For most investors, cost is a major consideration. Your investment will pay for initial franchise fees, training, marketing, technology and other costs associated with getting your business up and running.
Where does the money come from? Unless you just received a large severance package or family inheritance, you will likely need to finance some of the cost for your new company. One of the many benefits of choosing a successful franchise brand it that you have a support system to help you understand how much money you will need to fund your business until it, hopefully, becomes cash flow positive.
Self-Funding Your Business
Property and retirement accounts are two franchise funding options that many investors use to secure capital for their business.
- Home equity —Refinancing your home through a home-equity line of credit or a second mortgage will create seed money to launch a business, but you will have to repay the loan.
- Retirement Accounts — Withdrawals made from a 401(k) or Individual Retirement Account (IRA) before the age of 59 ½ will be subject to taxes and a 10 percent early withdrawal penalty. To avoid taxes or penalties you can take out a 401(k) loan or use Rollover as Business Startups (ROBS). This option is not a loan or withdrawal. A ROBS allows entrepreneurs to invest their retirement assets into their new business.
Before making any decisions, discuss your plans with a professional financial advisor. They can help you assess the level of risk you’re comfortable with and find the right path to meet your financial goals.
Your local bank or credit union is a good place to turn to for a small business loan. You will need strong credit and a good credit history. It may also work in your favor that you’re buying a franchise with a proven brand, rather than asking for a loan to start a new and untested business.
Banks will also want to see that you have a well-thought-out business plan, details about the franchise you’re investing in, and calculations of working capital and costs. You will also need to show your previous business experience, personal liquid assets and current debt.
- Bank Loans — Commercial banks frequently loan out to franchise businesses.
- Small Business Administration (SBA) Loans — The U.S. government guarantees SBA loans, which are then issued by your bank or another qualified lender.
- Veterans’ Loans — Some lenders will offer military veterans lower interest rates on small business loans in gratitude of their service to our country.
Franchises are good investments because they have tested business models that get results. So, for many of the same reasons that you’re choosing to invest in a franchise, there are companies that specialize in franchise financing because they also believe it’s a solid investment. These companies often match borrowers with lenders or may lend you the money directly.
Benetrends, Apple Pie Capital, and Funding Circle are just a few examples of companies that work with franchisees. Some companies also have programs for women and minority entrepreneurs. Do your homework to find out which third-party lender has the best franchise funding option for you.
For most investors, the money to finance a franchise will come from a combination of the previously mentioned assets and resources. Investigate what’s available to you and what kind of funding meets your business needs. Understanding your financing options not only helps you determine how to fund your business, but also lets the franchisor know that you are serious about succeeding as a business owner in their organization.
Nexterus is looking for qualified supply chain and logistics experts who are prepared to take the next step in their careers. Find out how we support our franchise business owners at https://www.nexterus.com.