Start the Preliminary
Your passion and drive toward entrepreneurship are the most important qualities to have for long-term success, but you won’t get very far without reliable funding for your business. To get that remedial process out of the way, there are many different franchise funding sources to look to. Below, we cover how to get funding for a franchise.
Franchisors
Your franchisor is a good first stop; they may have agreements with lenders to not only approve a loan but to shorten the process and help you open sooner. Check for this in the Franchise Disclosure Document or ask them directly when you finance your franchise.
Cash is King
Of course, using your own cash to buy the franchise will create a debt-free business from the get-go. That could be a great start, but if you are looking at being a multi-unit operator, you’ll need cash on hand for growth, so it may not be the best method for financing a franchise. Before deciding to use cash as a funding source for your franchise, consider the fixed costs associated with a single location. These fixed costs include:
- Rent
- Utility
- Salaries
- Insurance
Conventional Loan
Conventional loans are a common way to get funding for a franchise, but they are usually limited to existing business owners seeking unit expansion or new owners with very specific direct experience. In addition, lenders are looking for collateral in real estate that can be attached to mitigate their risk. Financing terms for a franchise generally run 5-10 years.
If you are considering using it as a source of funding for your franchise business, be sure to do the following:
- Compare various lenders to see who will offer the best APR, term lengths, and support throughout the term of your loan.
- Create a projected budget to show potential lenders you have thought deeply about costs and revenue, and that you are prepared to operate a viable business.
- Supplement each line in your projected budget with references to demonstrate that all projections are rooted in research.
Lenders are more likely to trust diligent loan applicants. Make sure you are taking the steps to mitigate any concerns they may have.
Home Equity
For those whose homes have retained their value and who own or have a significant percentage of equity in their home, a home equity loan is still a good alternative option for financing a franchise. You may have to go through more paperwork than you would have a few years ago, but you still can use your home as one of your franchise funding sources if you’re willing to take the risk.
If you’ve explored a few different funding sources without luck and you’re wondering how to get funding for a 1Heart franchise, home equity loans are a compelling option. They are relatively easy to qualify for and carry low-interest rates since your home is used as a source of collateral.
Retirement Plans
If you have a 401(k) or another retirement fund, you can create a C corporation that can be used to buy stock in a new franchise, thus financing your business. Be aware that the IRS rules on this are under scrutiny, but companies specializing in this area have been around for years and have helped many franchisees get started.
SBA Loans
Small Business Administration loans are one of the most common ways to finance a franchise. These loans are designed to mitigate lender risk by offering a guarantee on the principal of the loan from the federal government. SBA loans are very cumbersome to apply for and require personal guarantees and mortgages to be placed on your properties, so if you’re hoping to use SBA loans as a source to finance your franchise, make sure you get professional help when applying for one.
Before reaching out for help, though, be sure you have done the work on your end first. Most importantly, check your FICO credit score. The SBA does not grant loans to applicants who have a FICO score under 670. You should also expect to pay a range of fees during the application process, including appraisal, title, and environmental report fees.
Equipment Leasing
Finding a source for funding your equipment purchase or lease will increase your chances of finding money to finance the rest of your franchise. At the very least, it will reduce the amount you need from other franchise funding sources. Check with your franchisor to see if they have any deals with one or more equipment leasing and financing sources.
Take the First Step to Finance Your Franchise
Need to learn more about how to get funding for a 1Heart franchise? Get in touch with us now and start your journey with 1Heart Caregivers today!