OPM - Other People’s Money

You are ready to begin your franchise journey, and ask yourself a question: "How can I fund my franchise?"

Leveraging your assets, your credit to fund a business, and setting up the business to pay back the funding sources is how entrepreneurs build an empire big or small.

We understand how important this question is for starting your business. You may be surprised at what you have available to finance your franchise! We've outlined some of the many ways to secure funding and build your dream. Below are several methods including pros and cons and typical requirements for each.

401k Rollovers

While we typically refer to them as 401k rollovers this type of funding can be achieved from a number of different retirement investment accounts. 401k rollovers allow you to invest up to 100% of your retirement funds into your own business without paying any early withdrawal penalties or taxes and are an extremely popular method for franchise funding. This can also help you meet cash injection qualifications for other funding sources such as SBA and unsecured loans. 401k rollovers can offer several advantages, including less debt which accelerates profitability, immediate salary for owners, employee benefits, and more. They can be achieved in as little as a few weeks. There are several reasons why it is better to use your 401k vs. savings or take out a loan. First, the money in the 401k is pre-tax dollars. The money coming out of savings is after-tax dollars. And, if you opt for a loan, you will repay the loan with interest. Not so with a 401 rollover. Another good point is that using a 401k is great for an exit strategy: when the business is sold, all of the proceeds roll back into a retirement plan and are not taxed until distribution.

Unsecured Loans

Often referred to as a "signature loan" an unsecured loan is simply a loan that's extended to a borrower based on their good credit and requires no collateral. Typically to qualify for an unsecured loan a borrower will need a minimum credit score of 700, have no derogatory credit statements and have less than 40% utilization of current credit accounts such as credit cards and other lines of credit. Unsecured loans can be secured in as little as two weeks.

SBA Loans

While the SBA (Small Business Administration) does not actually provide loans they will offer a loan guarantee on up to 90% of the loan to qualified borrowers making the loan more attractive and less risky to the actual lender. SBA loans can be a great method for funding your franchise. Most SBA loans can be secured within 60 - 90 days. 

Understanding the pros and cons of SBA loans can help you determine if they’re right for your business. SBA benefits include interest rate caps that help keep costs affordable for small business owners and an SBA guarantee, which reduces lender risk and can increase the chance of getting your loan application approved.

However, loans through the U.S. Small Business Administration typically requires good credit to qualify and it may take months to receive funding after being approved. While your local banks can do SBA Funding it may be a better fit to work with a funding source that is familiar with the SBA Process and working with a preferred lender that is knowledgeable about franchises. We can connect you with those options. 

Home Equity LOC- Lines of Credit

Home equity lines of credit can be a relatively low cost method of funding your franchise. Home equity lines will typically cost 1% - 3% of the value of your home and interest rates ranging from 5% - 10% depending on your credit. A home equity line can be established in 30 - 60 days.

Finding the right plan to help ensure the success of your business can be a challenge.

Ready to Look Into Funding? 

We can provide you with leading funding companies who understand every aspect of the franchise industry. Their expertise can help you find the best customized options for you!