Deciding to start a business is exciting and scary. There are many considerations but depending on your business plans and overall goals. Choosing to buy a franchise can help solve many of the problems when starting a new business, especially if it is an established brand with a loyal consumer base. It does not solve then need for financing. You may still need to find financing. Here are several options and we are here to help you find the one that works best for you.
A great option for financing is from the franchisor directly. Granted, this is not offered through every franchise, but a growing number of reputable businesses are offering this potential funding solution. In fact, several companies even help to guarantee the loan in case of franchisee default. If interested in franchisor funding, then look under item 10 of the FDD to see if it is offered.
The Small Business Administration offers partial guarantees to third-party lenders to help reduce the risk of lending to new ventures or franchise developments. Many franchisors are approved by the SBA, meaning that the loan process is streamlined, not guaranteed. The 7(a) loan program is the most beneficial program for franchisees and has a cap of $2 million.
Family and Friends
While it is a nice idea to partner with family or friends in a business venture, it is vital that the details of the partnership are laid out in a legally binding agreement. These agreements offer clarity and specify obligations, which help to avoid potential personal and professional conflict later.
Many online lenders may be happy to work with a new franchisee, but not everyone is aware of this potential marketplace. There are several websites available that act as intermediaries between lenders and borrowers. Essentially borrowers create a loan request, the intermediary site then posts the request to its pool of potential lenders to find a suitable loan match, which can be a line of credit, bank loan, SBA loan, etc.
Retirement and C Corporations
One of the last options available to a franchisee is to use their retirement accounts. Now, since there are penalties for removing these funds early, they can establish a C corporation, which would then be the owner and operator of the business. The franchisee can then roll their retirement accounts into the corporate account, investing it into the newly formed company.
A franchise can be a great opportunity and funding may be difficult, but we are here to help you navigate all the challenges of business ownership and financing.