Financing a business purchase can be stressful. It’s your financial future on the line, after all. The good news is you do not navigate this money maze alone.

Working with us gives you access to funding experts who specialize in franchising. They offer financing strategies and options that fit most any situation. And they have relationships with lending institutions that understand the franchise model, which is why they achieve loan approval ratings as high as 99% for pre-qualified clients.

Franchise Financing Basics

Before reviewing the most common financing options you’re likely to face, here’s a checklist of what to anticipate in advance:

* Credit score — 640 qualifies you for some loans, but 680 or higher makes approval more certain. Review your credit report early in the process and correct inaccuracies.
* Net worth — Most brands require $150,000 or higher, but some terrific ones are okay with $100,000
* Cash — Be ready to fund 10% to 30% of your investment with cash, even if you’re taking out a loan
* Collateral — You’ll need to guarantee a loan with assets like property and stocks – the more collateral the better your chance of approval
* Discounts — If you are a veteran or first responder, many franchisors will offer a reduced franchise fee, saving you potentially tens of thousands
* Business plan — Banks require one, including revenue and expense estimates; our partners can help package your plan for review

Eight Franchise Funding Options

You are introduced to a funding specialist early in our process. This allows you time to carefully and calmly review options, get pre-qualified and make a smart, fully informed decision.

Below are eight common funding options. Our specialists will cover in detail the ones most relevant to your situation.

1. Rollovers As Business Startups (ROBS)

* Allows your to tap your 401(k) or IRA to buy a franchise without early withdrawal fees or tax penalties
* Popular option if you lack cash and don’t want to take out a loan or put up collateral — though you can pair ROBS with a loan
* Requires you to form a C corporation and adhere to certain tax laws and administrative procedures for the life of the business, which is why it’s critical to work with a ROBS expert
* Downside: You’re putting retirement funds on the line, betting your business will have a better ROI

2. Small Business Administration (SBA) Loan

* These are backed partially by the federal government, so interest rates and repayment terms are generally more favorable versus commercial banks
* The so-called “7(a)” loan type allows you to borrow up to $5 million for a franchise; 10-year term
* You will need to put up cash for 10% to 30% of the total investment, plus collateral
* Can be combined with other funding methods, such as a ROBS
* The loan is actually from a bank; SBA simply guarantees to pay a portion if you default

3. Commercial Loans

* Available via banks, credit unions and other financial institutions
* No SBA guarantee means more lender risk, so you’ll pay higher interest over possibly a shorter term
* Start-up and emerging franchises may be more difficult to gain approval for
* Requires good credit rating and a detailed business plan

4. Franchisor Funding

* Franchisors may offer in-house financing or partner with preferred lenders that you can work with
* Lender partners may offer favorable rates and fast-track loan approval, but shop around to confirm
* We will coach you to ask about this option when speaking with brands during your discovery process

5. Home Equity Line of Credit (HELOC)

* Allows you to set up a line of credit leveraging your home’s equity, with lower interest and longer payback periods than bank loans
* Downside: Your home is at risk of foreclosure if you miss payments or default

6. Portfolio Loan

* Allows you to leverage the value of your investments without selling them
* Similar to a HELOC, you set up and borrow against a securities-backed line of credit (must have $85,000+ in your portfolio)
* Interest rates for this loan type are well below market rates, a huge plus during inflationary periods
* Downside: If the market dips dramatically and your portfolio value falls below your loan value, you may have to pay back the entire loan suddenly

7. Equipment Loan

* Applies if your franchise requires expensive equipment such as a pizza oven or truck fleet
* Loan is secured by a physical asset, making it simple to get
* Downside: Equipment can be repossessed if you default or miss a payment
* Alternatively, you can lease the equipment, especially if it is particularly expensive

8. Unsecured Start-Up Loan

* Alternative if you can’t secure a commercial or SBA bank loan or prefer not to put up collateral
* Interest rates (fixed, not variable) vary from competitive to 3% higher than SBA; terms run 3 to 12 years
* Key approval factors are credit score (minimum 700), verifiable current job income and credit history
* Loan is not reported to credit bureaus and can be refinanced later at a lower interest rate
* Rapid 7-14 day process assures you have funding before signing a franchise purchase agreement
* Downside: 3% or slightly higher fee, which can be rolled into the loan

Other Franchising Funding Options

* Partners & investors — reduces risk and may add expertise to your efforts, but you’ll share profits
* Friends & family — an option if you have poor credit or can’t afford to pay interest
* Personal assets — like savings or a severance package, but avoid this route if you have no other financial safety net
* Personal loan – a risky last resort; a default cripples your credit rating and ability to borrow again

Using Cash For Franchising Funding

The general rule is to avoid paying cash for your entire investment – even if you have money sitting somewhere. The reasons are risk and expansion:

* Paying cash only ties up all of your money in the business, and keep in mind you may not earn a return for the first year or two while your franchise ramps up
* Alternatively, if you borrow, you can invest some of your cash elsewhere; this allows you to diversify your portfolio and spread your risk
* If you invest in multiple units, using a loan to fund your first unit allows you to keep cash in reserve as a cushion if you need it for your next unit

Franchise Funding Deal Breakers

Know in advance that if any of these apply to you, securing approval at any lending institution will be difficult. We will ask you about these during our first conversation so that we can try all angles to help.

* Pending or upcoming divorce
* Current collection (even a $25 medical bill hurts)
* Previous default or unpaid-in-full federal loan (FHA, SBA and student loans)
* On parole or probation
* Felony or misdemeanor in the past involving a child
* Defendant in a current lawsuit
* Unpaid taxes with no payment plan in place

Franchise Ownership Tax and Legal Advice

This information is intended as a helpful overview, not professional tax or legal advice. When you get to this phase of your journey, in addition to our funding partners, we can introduce you to our attorney and CPA partners.

Franchising is a heavily regulated industry. These partners have the industry-specific knowledge and insight to offer accurate, reliable counsel.

Want Help Evaluating Franchise Opportunities?

We can help you identify and invest in the franchise business that is right for you. Our personalized ownership recommendations help you save time, reduce risk and invest confidently – with no fee or hidden cost.

Our process starts with a free 15-minute conversation during which we introduce ourselves, learn about you and give you a sense of how we’d work together. You can then decide if you’d like to proceed.

No obligation, no catch – we invite you to chat when you’re ready. You can schedule easily online for the date and time of your preference.