Franchise Funding Strategy

Franchise Funding Strategy is Like Buying a House

Franchise funding strategy is like buying a house, you just need to dig through your many funding options to find the best option. When it comes to exploring franchise ownership, there are lots to consider. Which brand is the best fit? What is the local market potential? Will you be involved in the day-to-day operations, or will someone else manage the business? But one needs to consider how you are going to pay for the company!

If you have a clear picture upfront of your funding options and overall funding strategy, you will be able to take a holistic approach and be confident throughout the entire process.  Financing may influence which brand you select, whether you start with one unit or multi-units, and how quickly you can get your doors open.

Common Franchise Funding Strategy Options

Two of the most common ways to start or grow a franchise business are with qualified retirement savings, which the IRS refers to as Rollover of Business Startups (ROBS) and Small Business Administration (SBA) backed loans. Franchisees also often use a combination of these as a complete franchise funding strategy. Other non-traditional solutions—more often for expansions rather than start-up—include unsecured loans, securities-backed loans, equipment leasing, and refinancing programs.

SBA Loans

The Small Business Administration works with lenders to offer business loans for startup, acquisition, expansion, and working capital with values available up to 5 million dollars. The SBA provides a guarantee to banks and lenders for the money they lend to small business owners, promising to pay a portion of the loan back if the business owner defaults on loan. Business owners who may not qualify for traditional loans often qualify for SBA loans because they alleviate the risk associated with lending money. Your funding partner’s role is to prepare a loan package and then shop the loan to their lending network to get you the best deal.

401(k)/IRA Rollover

Utilizing a rollover program allows you to access your qualified retirement savings tax-deferred and penalty-free to invest in your business. The benefits are powerful yet easy to understand:

  • Invest your retirement funds in your business – without taxes or penalties
  • Use a safe, proven plan based on long-standing provisions of the Internal Revenue Service
  • Use pre-tax dollars to fund your business
  • Gain business equity and an improved cash flow position from the start
  • You can use the rollover funds to receive a salary during the startup
  • Accelerate business profitability by eliminating or reducing interest and debt
  • Secure funding fast – typically in two to three weeks or less
  • You can set aside tax-deductible retirement savings up to $200,000 per year

Using retirement funds is an excellent option for those looking for a funding solution that doesn’t create any debt. The IRS does, however, have strict guidelines regarding the execution and maintenance of the plan. Most reputable funding companies offer the IRS-mandated Third-Party Administration (TPA) service to ensure your plan maintains the IRS compliance requirements.

How to Know Which Options YOU Qualify For

There are pre-approval tools that you can use to help choose your options.  You input essential information about your assets, credit score, investments, available cash, … and they will calculate a funding amount for which you qualify. While fast, there are many variables to be examined to give you a definitive funding solution. Securing an accurate assessment and pre-qualification is vital early on so you better understand what you can comfortably afford.

If you are considering franchise ownership, save time and headaches by addressing your franchise funding strategy on the front end.  To learn more about these options, please CONNECT with Scott Diener today to discover how much a franchise coach can assist you…for free!