Funding My Franchise

Published on
July 19, 2022

Funding my franchise is critical for most prospective franchise owners. Opening a franchise requires cash (capital), sometimes lots of it to fund your franchise. You will need to have enough capital to pay for franchise fees, upfront start-up costs, inventory, working capital, and many other items. What if you don’t have enough cash? Here are the best options if you need a business loan to start your franchise opportunity.

Friends & Family Financing

Your loved ones and close friends will want to see you succeed. Therefore, they are easiest to approach, will likely give you the best terms, especially as compared to a bank, and it can often come with fewer pressures and expectations. 

There are downsides to using friends & family. Mixing business and family can get dicey, putting relationships at stake. Also, friends & family likely may not have all the capital you need. But if they have the cash, it will probably be your fastest option.

Credit Card Financing

It’s possible to do what is called credit card stacking. That is, apply for 3-4 credit cards. You may be able to obtain financing of up to $150,000 with this stacking approach. However, going this route takes time to shop for the best credit card terms and some energy to complete the many applications. In addition, interest rates can get pretty hefty so these loans can be costly. But this can be an excellent option if you have no other choice, like having a relatively low credit scorer. Depending upon the credit card issuer, opening credit card accounts may be almost immediate but could take as much as 7-14 days.

Cash-Out Refinancing

Wouldn’t it be nice to tap into the equity of your home? You can refinance your home with a cash-out option to tap into that source of capital. Interest rates will almost certainly be much lower than most other loan options. The downside is you may have an existing low-interest rate mortgage loan, and it’s not to your advantage to refinance the entire loan at a higher interest rate. Cash-out refinancing may take 30-60 days to close, depending upon the bank.

Home Equity-line of Credit

A home equity line of credit (HELOC) allows you to tap into your home equity without the need to refinance your first mortgage. This approach is excellent, especially if you already have a low-interest rate on your first mortgage. In addition, another benefit of a HELOC is that you can tap into the loan as you need. You can withdraw cash anytime, usually over 2-3 years, and have as much as ten years to pay it back. You can also pay it back at any time. Finally, HELOCs are generally faster to close; expect it to take 30-45 days.

Business Loans to Fund My Franchise

If you have good credit, you might be able to get a bank loan for your business for funding your franchise. The advantage of these loans is that you don’t have to borrow against your personal property. Instead, the loan is tied only to your business. The downside is that interest rates can be pretty high but less than credit card stacking. These loans can be done relatively quickly, around 30-45 days.

Stock & Bond Portfolio Loans

Maybe you don’t own your own home, so cash-out refinancing or a HELOC won’t work for you. And a business loan is too expensive. However, if you have a portfolio of stocks and bonds, you can borrow against their value. The amount you borrow depends on the investment type. For example, with stocks, you might be able to borrow up to 50% of the stock prices, whereas with US Treasury bonds, you may be able to borrow up to 95%. You have to be careful how much you borrow because if the value of your stocks and bonds declines significantly, your stock broker may ask you to pay down some of the loans. You will find interest rates attractive and what is best about a portfolio loan is that they can be set up in 7-14 days.

SBA Loans to Fund My Franchise

SBA loans are a great option. Banks love them since the government is guaranteeing the loan against defaults. In addition, interest rates will be better than bank loans. The challenge with SBA loans is it requires a lot of paperwork, you will have to have a complete business plan, and financial forecast for the business, and these loans can take 60-90 days to close. 

401(k) and IRA Financing

Properly using your retirement account to finance your business offers tremendous advantages. This approach, called Roll-Over Business Start-up (ROBS) financing, is penalty-free, debt-free, and tax-deferred. Think about it this way, you usually invest traditional 401(k) and IRA’s in stocks and bonds you’ve purchased from other companies, but in this scenario, your 401(k) is buying the stock of your own company. As your business grows and your company becomes more valuable, your retirement account is also becoming more valuable. It’s not risk-free, but you have the greatest control over the risk you plan to take for your business. Read more about ROBS funding.

Looking for Funding Help to "Funding My Franchise"

As you can see, there are many options for funding your franchise. Additionally, using more than one financing method is very common for buyers to do. To get more franchise funding options, contact Al Lesko at https://www.fundmyfranchise.com/ or Kelly Krugar at Benetrends Financial. For franchisor that offer funding options, contact us or schedule a call with franchising expert, Jay Friedman.

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