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 reasonable finding, too. To get that remedial process out of the way, there are many different franchise funding sources to look to. Below, we go over a few.
Your franchisor themselves 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.
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 strategy.
Conventional loans are common franchise funding sources, 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. Terms generally run 5-10 years.
For those whose homes have retained their value and who own or have a significant percentage of equity in their home, this time-tested source of funding for franchise businesses is still a good alternative. 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 have a 401(k) or another retirement fund, you can create a C corporation that can be used to buy stock in your new franchise business, thus funding it. 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.
Small Business Administration loans are one of the most common franchise funding sources. 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 make sure you get professional help when applying for an SBA loan.
Finding a source for funding your equipment purchase or lease will increase your chances of finding money for the rest of your new business. 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.
Need to know more about funding for franchise businesses? Get in touch with us now and start your journey with 1Heart Franchise today!