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You’re finally ready. You’re fulfilling your dream of owning a franchise…One last thing… Finding the money you need.
You ask yourself…”What are my options?” Looking to get funding for your business, but not sure which is the right solution for you?
HERE ARE YOUR FUNDING OPTIONS:
Your franchisor is a good first stop. Ask them for recommendation. They may have agreements with lenders to not only approve a loan but to shorten the process and help you open sooner. Check for this in the Franchise Disclosure Document or ask directly.
Cash is King
Of course, using your own cash to buy the franchise will create a debt-free business. However, if you are looking at being a multi-unit operator, that may not be the best strategy, as you will need your cash for growth.
Conventional loans are usually limited to existing business owners seeking unit expansion, or new owners with very specific direct experience, In addition, lenders are looking for collateral in real estate that can be attached to mitigate their risk. Terms generally run 5-10 years.
For those whose homes have retained their value and who own or have a significant percentage of equity in their home, this time-tested source of business start-up funding is still a good alternative. You may have to go through more paperwork than you would have a few years ago, but you still can use your home as collateral – that is, if you’re willing.
If you have a 401(k) or other retirement fund, you can create or C corporation that can be used to buy stock in your new franchise business, thus funding it. Be aware that the IRS rules on this are under scrutiny, but companies specializing in this area have been around for years and have helped many franchisees get started.
Small Business Administration loans are one of the most common forms of financing for a franchise. These loans are designed to mitigate lenders risk by offering a guarantee on the principal of the loan from our federal government. SBA loans are very cumbersome to apply for and require personal guarantees and mortgages to be placed on your properties, so make sure you get professional help when applying for an SBA loan.
Finding a source for funding your equipment purchase or lease will increase your chances of finding money for the rest of your new business. At the very least, it will reduce the amount you need from other lenders. Check with your franchisor to see if they have any deals with one or more equipment leasing and financing sources.
sources: Franchising.com, International Franchising Association