7 Ways To Finance a Franchise
Updated: Feb 12
Working as a franchise consultant, we match potential or existing business owners with franchise opportunities. Unless you are independently wealthy, finding money to fund your business is a big piece of the equation. Have you always wanted to be your own boss? Let's look at ways to make your business ownership dreams a reality.
Seven ways to fund your new business:
1. Cash - Seems like a "duh" thing to say but keep in mind that if you are planning on seeking a business loan a percentage of the overall loan will require a down payment. For example on an SBA loan, it will typically require a cash injection of 20%. You can also draw up a contract with friends or family and ask for them to invest in your business.
2. Conventional Loans- Usually limited to existing business owners seeking unit expansion, or new owners with very specific direct experience.
3. Self Directed Retirement Plans - Retirement account funds can be a huge source of funding and investment for your business, make sure to take the time to talk to your advisors and understand the rules. Even though it can be referred to as a 401K /IRA loan, it's technically not a loan, there are no loan payments or interest involved. According to Benetrends, you can consider The Rainmaker.
Advantages of The Rainmaker Plan:
Invest your retirement funds in your business, without taxes or penalties
Use a safe, proven plan based on long-standing provisions of the IRS
Use pre-tax dollars to fund your business
Gain business equity and an improved cash flow position from the start
Pay yourself a salary from the beginning
Accelerate business profitability by eliminating or reducing interest and debt
Secure your funding quickly, often in two to three weeks or less
Annual tax-deductible contributions of more than $200,000 per year*Optimize business equity and value
Take full advantage of tax benefits
*amount is based on current age, projected retirement age, salary and past service with the company
4. Leasing- If your franchise has hard assets or equipment such as a vehicle, office machinery and so forth, leasing may be your best option. Leasing equipment can have less initial costs than outright purchase and can be easier for small business owners.
No additional collateral
No down payments
Potential tax advantages
5. Direct Franchisor Financing - Most franchisors do not offer to finance. Item 10 of the Franchise Disclosure Document will let you know if any is offered. This is often not the best option in terms. Understand what the terms and conditions are when reviewing these types of loans.
6. SBA Loans- These loans are designed to mitigate lenders' risk by offering a guarantee on the principal of the loan from our federal government. The Small Business Administration (SBA) has a number of financial programs for small businesses, like the commonly used 7(a) Loan Program, but the process to get your funding in place can be confusing. These funds can be used for anything from the construction of a new building to stocking inventory. Some Benefits of SBA Loans
Customized solutions based on your individual needs - one size does not fit all
A typical cash injection of 20% on SBA loans (not the 25-30% quoted by other providers)
Fixed-rate loans available in most areas with a total cash injection of 25%10% cash injection in TX, CO, FL, IL and MO
Loans secured in all 50 States
Working capital lines of credit after 3-6 months in business - 48-hour approval and funding in less than one week
Expedited approvals/funding on loans $150k or less with no personal collateral
Expertise with emerging brands,mature brands, single location, multi-unit expansion and re-sales
7. Franchise Loans - If you have limited experience in the business world, buying a franchise can be one of the safest options. A proven concept franchise has a better chance of getting funded than a start-up, due to the track record of success. It's best to use the franchise loan when:
Interested in using an already proven business model
Need a quick start-up time
Desire a less risky business venture
8. All of the above- It may be best for you to utilize a combination of the above-mentioned vehicles for the funding of your franchise.
*To get the best option for you, make sure you are doing your due diligence and consulting with your advisors. My advice, before doing all the work to look at franchise options get started with a pre-qualification. There are literally thousands of business options out there don't spin your wheels with a business that won't fit, get started with pre-qualification.
Interested in learning more about franchise opportunities? Contact us below.
SSB Franchise Consulting offers one-stop shopping when you are searching for a business to call your own. We help you save time by working with you to learn your likes and dislikes and style of doing business then matching you with prospective Franchisors at no cost to you. To read more on if we're a good fit go to https://www.ssbconsulting.us/faq 208.724.1731
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