Over the past 35 years our Entrepreneur’s Source network has coached hundreds of thousands of people, and helped thousands become self-sufficient through business ownership. We have witnessed, firsthand, what it takes to discover an opportunity and then follow the process to obtain the funding necessary to launch a successful business. While the majority clients we work with have never financed a business before, our coaching process and network of funding partners help make the financing experience an insignificant aspect of the business discovery process.
Before we outline a few primary means for obtaining business financing, it’s important that we separate franchise business opportunities from independent businesses. When it comes to obtaining funding through traditional commercial sources, like banks and credit unions, the bar is lowered slightly for franchises because financial professionals understand that most franchising opportunities are proven business systems; they have a success or failure rate that can be measured over time, and quantified as part of your loan process. Unlike a new, independent business that may only be an idea that someone has written a business plan for, franchises have a history, and they are also required by federal law to provide financial trends evidence that is available for review by all interested parties.
#1 – Credit Lines, Unsecured Loans & Leases: If taking out a loan to open a business is a concern, you may be able to secure a line of credit against an existing property or business. Obviously, you will need to have equity within that property to make the line of credit feasible, but a credit line can give you maximum flexibility in terms of repayment by your new business. If your credit score is better than your available equity, you may be able to borrow thousands of dollars using nothing but your signature. These unsecured “Signature” loans may be limited to $50,000 or $75,000, but may be an ideal solution compared to using a higher interest rate credit card. Further, if your new business requires a significant amount of equipment, computers or vehicles, leasing is a likely option since it allows you to posses necessary hard assets without using your collateral, or tapping existing credit lines. Plus there may be potential tax advantages to leasing. In 2019, nearly 80% of all American businesses lease equipment!
#2 – Leverage Retirement Assets: If you’ve already worked for many years and the time has come to open a business for yourself, you may have established significant retirement funds. One of the most popular methods for financing a new franchise business is called Debt Free Funding. Ultimately, this process starts with a 401k or other retirement accounts rollover, where you use your own retirement funds as a loan, which you pay back to yourself with interest! And this process is done without any early distribution taxes or penalties. Even better, as your new business grows, so to does your retirement account! While most 401k accounts are passive, meaning you have zero control over whether mutual funds or stocks actually go up over time, with this avenue you can proactively influence the rate of return. Further, you can create retirement accounts within your business, and make contributions toward your retirement that also defer income (and lower taxes)!
#3 – Traditional Commercial Loans: A franchise business is a tangible asset in the eyes of commercial lending institutions, actually better than a home, car or boat because a business GENERATES revenue, making it more likely it can repay a loan and service its own debt. If the franchise business you are considering is listed on the Small Business Administration (SBA) Registry, that works as an additional “seal of approval” for banks and credit unions, and may result in better loan terms. Another benefit of a SBA business loan is that franchise fees, tenant improvements, training travel expenses, premarketing investments, closing costs, and even some working capital can all be included within your SBA approved loan!
To learn more about all of these advantage, plus other funding options, like Angel Investors, we highly suggest you access our online Franchise Financing Made Easy Guide and also, get started today with exploring various franchise business by taking Step One on FranchiseMatch.com!