Why Should You Look at Funding First?
Before you start dreaming about your new franchise, you need to think about how you’ll pay for it. Many aspiring franchisees jump into the process excited about their business choice but later realize they don’t have the funding lined up. This can delay or even derail their plans.
Franchisors want to award franchises to people who are financially prepared. If you can show you have the resources—or a plan to secure them—you’ll be seen as a stronger candidate. Plus, having your finances figured out early means less stress and a smoother launch process when you’re finally ready to open your doors. The example often used here is to compare it to someone who is prequalified up to a certain amount to purchase a home. This pre-qualified home buyer would be seen as a person ready to buy a home.
How to Plan for Franchise Funding
Planning ahead will put you in the best position to secure financing. Ask yourself:
How much capital do I have available to invest upfront?
Will I need to borrow money? If so, how much?
What’s my plan for covering personal expenses while my franchise ramps up?
Once you have these answers, you can explore financing options and determine which approach works best for your situation. Having a clear plan will also make it easier to get approved by franchisors and lenders.
1. Paying Cash for Your Franchise
If you have significant savings, an inheritance, or funds from selling an asset, you may be able to pay for your franchise with cash. The benefit? No loan payments or interest. However, it’s wise to keep some savings aside for emergencies. Many franchisees use a combination of cash and financing to maintain flexibility.
2. Leveraging Your Retirement Funds (401(k) or IRA)
Your retirement savings can be a great source of funding. Here are two common ways to use them:
401(k) Loan: Borrow up to $50,000 from your retirement account, with the understanding that it must be repaid if you leave your job.
ROBS (Rollover for Business Startup) Program: Convert your 401k retirement savings into a direct investment in your business without taking a loan or paying withdrawal penalties. Many people see a huge advantage to funding their franchise with a ROBS.
If your franchise is part of your long-term financial plan, this can be a smart way to fund it.
3. Taking Advantage of SBA Loans
The Small Business Administration (SBA) offers loan programs to help new franchise owners. The most popular options include:
7(a) Loans: The most flexible SBA loan, offering up to $5 million in funding.
Express Loans: Faster processing, but typically capped at $150,000.
504 Loans: Designed for purchasing equipment or real estate for brick-and-mortar franchises.
SBA loans often provide better interest rates and terms than traditional bank loans.
4. Using a Home Equity Line of Credit (HELOC)
If you own a home with built-up equity, a HELOC lets you borrow against its value. This option often provides lower interest rates and flexible repayment terms. However, since your home is collateral, make sure you’re comfortable with the risk before moving forward.
5. Other Ways to Finance Your Franchise
If the options above don’t work for you, here are some additional financing strategies:
Franchisor Financing: Some franchisors offer loans or work with preferred lenders to provide better terms.
Private Loans: Traditional bank loans can be an option, but they often have stricter requirements.
Unsecured Loans: These loans don’t require collateral, but they usually come with higher interest rates.
Business Grants: Though rare, some grants exist for veterans, women, and businesses in underserved markets.
Secure Your Franchise Funding Early
The key to success? Plan your financing early. The sooner you secure your funding, the smoother your franchise journey will be.
Need help figuring out your best financing option? I work with experienced franchise funding specialists who can help you find the right solution. Let’s talk about getting you one step closer to franchise ownership!
Ready to Explore Franchising? Let’s Connect!
Mack and Sharon Strange are on a mission as Franchise Consultants to help others go from “Start” to “Success” when it comes to franchise ownership.
If you’re curious about exploring franchising as a career pivot, investment vehicle or lucrative side hustle, let’s talk!
Frequently asked questions (FAQs)
Q: How do I book a call?
A: You can book a free, no obligation call with Mack here and/or a free call with Sharon here.
Q: How much do your services cost?
A: As Franchise Consultants, there’s no fee for our services. We’re compensated by franchisors only if and when you decide to move forward with (and are approved for) franchise ownership.
Q: What do you do?
A: Our role is to serve as a trusted guide and educational resource.
Q: Where can I learn more?
A: You can learn more about our story and how YOU can follow in our footsteps via the Franchise Together Podcast.
We look forward to connecting with you soon
