How you fund your franchise is one of the earliest and most important decisions you’ll make as an entrepreneur. Fortunately, knowing which franchise financing resources to turn to makes the process both easy and equitable.
Purchasing a franchise is an exciting way to become an entrepreneur. While it’s not for everyone, there are some major benefits to being a franchise owner, which put you on the fast track to success as a small business owner. With pre-made marketing materials, instant brand recognition, and corporate training support, many of the common struggles of early-stage entrepreneurship are more easily managed as a franchisee. However, these benefits can come with a higher price tag than an independent start-up, which is why it might be best for you to create a plan for franchise financing early in your business launching process.
Utilizing the right resources when financing a franchise can make all the difference — keeping your mind at ease and your focus on building your new business. Whether you’re trying to decide which franchise is right for you, working out your budget, or looking at small business funding, you never need to feel alone or start from scratch.
If you want support understanding how to finance a franchise, turn to these available resources to ensure the process goes smoothly.
Resources for Budgeting the Purchase of a Franchise
One of the more efficient ways to narrow down your search for the best franchise is first to determine what the optimal kind of funding is for your business. Then determine how much you can afford.
You might have an idea in your head about how much you want to spend or what type of loan you want to take, but it’s wise to dig a little deeper and use an online business financing calculator. Utilizing these easy-to-use online tools can help you understand detailed and specific information such as the cost of carrying different kinds of capital, estimated monthly loan payments, when your business is expected to break even, and more.
Once you’ve gotten a better understanding of the cost of different funding methods, it’s time to pre-qualify. Using a pre-qualification tool is essential to understanding your budget as a future franchise owner. Just a few minutes spent filling out the online questionnaire provides you a summary of both the financing methods you’re qualified for as well as your total funding method. Especially when funding a franchise, which can have a higher initial price tag, it’s important you look at all of your funding options including combining financing methods — an option included in the summary if eligible.
Where to Find a Franchise for Sale
It might seem obvious, but an important step in your franchise financing journey is finding an available franchise that’s the right fit for you. Fortunately, franchisors are equally enthusiastic about making a great match between their franchise and potential new business owners. There are plenty of resources available when looking for an available franchise. Here are a few places you can start when looking for the right franchise for you:
- Franchise Directories. Business-specific search sites can be a reputable, reliable resource to help you quickly narrow your search for a franchise. With filters for price, required capital, and location, you’ll only receive listings tailored to your requirements. By relying on reputable sites rather than a public site like Craigslist ensure you’ll only see verified franchises. We recommend these business search sites:
- Franchise Consultants. Just as an experienced real estate agent can help you find the right home at the right price, working with a franchise consultant can be equally beneficial. Seasoned and knowledgeable consultants utilize their expertise to quickly make the right franchise match for you — saving you time and frustration. We recommend these franchise consultants:
Understanding Your Franchise Financing Options
Once you’ve found the right business for you and you’re ready to move forward with financing a franchise, it’s time to return to the funding options introduced to you in your pre-qualification summary. Take a minute to review these popular franchise-funding methods, and learn more about optimizing your buying power.
For those looking for debt-free financing, Rollovers for Business Start-ups (ROBS) is an excellent option when available. ROBS, also known as 401(k) business financing, makes it possible to utilize the funds in your retirement account for small business financing — including start-up costs, purchasing an existing business, or funding a franchise — all in a tax and penalty-free transaction.
ROBS doesn’t have collateral or credit requirements. Your funding is only limited to the amount of money in a rollable retirement account such as an IRA or 401(k) —Guidant does recommend ROBS for those with over $50,000 in their eligible retirement fund. Many franchise owners find success funding through the ROBS arrangement because funding is very fast, there are no monthly interest payments to make, and ROBS allows owners to start cash-rich.
Many hopeful small business owners look to finance a franchise turn to Small Business Administration (SBA) funding. SBA loans offer low-interest rates and favorable repayment terms for amounts up to $5 million. With small business friendly terms and high maximum funding, franchise owners with higher initial start-up costs often turn to SBA loans.
However, with credit, collateral and down payment requirements, SBA loans are not easy to qualify for — many applications are rejected. Thankfully, combining ROBS and SBA funding can both increase your attractiveness as a borrower and your buying power. Once the ROBS funding transaction is complete, the funds obtained can be used as the down payment on an SBA loan — this transaction is perfectly legal and makes it possible for you to increase your budget when financing a franchise.
Other Funding Options
If you don’t have the money in your retirement account or don’t meet the qualifications for SBA lending, there are still plenty of options for franchise financing. Whether you want to utilize traditional collateral-based lending or learn more about equity funding options, funding should not be a barrier between where you’re at now and becoming a franchise owner. Guidant’s Complete Guide to Your Small Business Funding Options takes a deep type into just about every funding option available, so you can learn more about which is the right choice for you.
Knowing where to turn when you’re deciding how to fund a franchise will help make you feel even more empowered as a small business owner. From business calculators to franchise brokers and alternative funding sources, be sure to utilize all of the resources at your disposal during the financing process.