Franchise opportunities have really expanded over the years and now span practically every industry and most investment budgets.
Buying a franchise can be a good way to start a business when you don’t want to build it from scratch.
However, launching a franchise usually requires financing, and determining the best financing options can be difficult.
While some franchises have financing options and sources in place for their franchisees, you may not qualify for in-house financing. That’s when you might need to get creative with financing your franchise.
Let’s Look at Three Creative Ways to Finance a Franchise
Financing your Franchise using SBA Guaranteed Loans
Franchise Financing Using Equipment Financing
Franchise Financing using Real Estate Financing
1) Financing your Franchise using SBA Guaranteed Loans
SBA 7a loans for franchise acquisition can provide the funding necessary to launch a franchise operation. Both the SBA 7a and 504 programs may fit into your financing strategy. You should work with a preferred lender who understands the franchise industry, who can fast track loan requests, and who offers the best terms and rates. The SBA maintains a list of program-approved franchises – make sure the franchise you’re considering is on that list!
2) Franchise Financing Using Equipment Financing
Almost every franchise requires equipment. In some cases, franchises use equipment from specific vendors to meet the standards laid out by the franchisor.
Depending on the terms of the franchise agreement, franchisees will have to either purchase or lease the equipment, vehicles, appliances, or anything else they need. Equipment financing offers capital specifically to purchase equipment, with flexible terms.
3) Tap Into Retirement Savings with a Rollover for Business Startups (ROBS)
If you have a sizable retirement account, you can leverage it to fund your franchise without incurring early withdrawal penalties or taxes. Through a Rollover for Business Startups (ROBS) arrangement, you can use funds from your 401(k) or IRA to invest in your business.
How It Works:
Establish a C corporation for your franchise.
Roll over your retirement funds into a new retirement plan sponsored by your corporation.
Use the funds from the retirement plan to purchase stock in your business, providing capital for startup costs.
Pros:
No debt or monthly loan payments.
Retain full ownership of your business.
Cons:
Risking your retirement savings if the business doesn’t succeed.
Complex setup that requires professional guidance.
