If you’re a prospective franchisee, then franchise financing can help your new venture get off to a great start. This post takes a look at some of the best ways to fund a new franchise branch.
Some franchisors—the parent organizations that let franchisees operate businesses under their brand—offer funds to franchisees. This type of franchise financing has the benefit of convenience since you’ll likely already work with the franchisor in some capacity.
The US Small Business Administration (SBA) backs certain loans. This allows lenders to more freely extend financing to prospective and current business owners. There are three predominant types of SBA loans: 504 loans, 7(a) loans, and microloans. The 504 loan program is meant for major fixed asset purchases, while 7(a) funds have a wider range of uses, including generating working capital and covering fees. Microloans, too, have a variety of potential purposes, but they are capped at $50,000.
Conventional loans handed out by traditional banks can be a powerful source of franchise financing. The catch is that these are difficult to qualify for. They may be worth a shot, but many franchisees end up needing to turn elsewhere.
Countless franchises require equipment. Leasing it or obtaining an equipment loan can allow you to get up and running without mountains of cash on hand.
Home Equity Loans and Lines of Credit
Some franchisees turn to their home equity to access franchise financing, whether through a loan or line of credit. Both unlock funding that can help you launch your franchise. However, foreclosure is a risk if you can’t keep up with the repayment schedule.
A financing setup known as a rollover for business startups (ROBS) allows entrepreneurs to tap into their retirement funds to fund a new business venture. This setup has its perks, but it will deplete the amount you have set aside for retirement, so proceed with caution.
Discuss Your Options
Want advice for your specific entrepreneurial situation? Talk to the professionals at 18 Sierra Financial.