100% Financing May be Offered by the Franchisor (or the Franchise Company)

August 21, 2008 | By

Getting a loan to start a businessFranchisors may offer their own financing programs, or they may have a partnership agreement with a lending company. The lender is familiar with the franchise concept and would be familiar with the brand, which makes it easier to get funding from their partner company. If a franchisor doesn’t offer financing, you can research a wide range of financing options, including:

• Traditional Financing
In order to get a loan from many banks you must have a good credit rating. This includes available liquid capital, as well as a having a good business plan (banks are conservative in whom they award business loans to). Bank interest rates, however, are usually very competitive. Some franchisors will aide you in preparing your business plan so that it will impress the lending companies.

• SBA Approved Financing
The Small Business Administration (SBA) offers SBA approved loans. These business loans can be obtained by many hopeful business owners who do not qualify for traditional financing. These loans are very much in demand, especially in today’s economy.

• Investing Your Retirement Funds in a BusinessOpening your piggy bank savings to finance a business
Some companies will allow you to roll your 401K or other retirement funds into a business loan. There are no penalties assessed with this kind of retirement fund conversion. It enables you to invest in a franchise business without using your home or property as collateral.

• Home Equity Lines or 2nd Mortgages
If you own a large enough percentage of your home, you can take out a home equity line of credit or second mortgage. This option can be the easiest way to get the necessary cash to finance a business. A business plan is not necessary to be approved for this type of funding.

• Other Non-Traditional Financing Options
With good credit, you may be able to get a loan online. Also, some of the smaller private money lenders and business brokers will work with you if you need more personalized services.

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Comments (2)

  1. • Investing Your Retirement Funds in a Business Some companies will allow you to roll your 401K or other retirement funds into a business loan. There are no penalties assessed with this kind of retirement fund conversion. It enables you to invest in a franchise business without using your home or property as collateral.

    THERE IS A BETTER WAY!!! Do NOT take a loan out against your retirement funds!!!! It is a prohibited transaction. You must establish a Self Directed IRA or 401k, and that account then funds a C-Corp or an LLC. That entity can then invest into the Franchise, and you avoid any interest, you can start with equity, and avoid taxes and penalties, all while gaining control over your hard-earned money! That is what I do. As an Adviser with Asset Exchange Group, LLC out of Austin, Texas, I see too many people going about Franchise investment with retirement funds all WRONG!

    The benefits of a Self Directed Retirement Account alone are worth setting up, if you are one of the many who feel they can make better investment decisions than their fund managers they pay 3% to each year. Adding to freedom, Franchise financing SHOULD be done like this due to the control you have of your future. You first need a Franchise Adviser help you decide what Franchise and where it should be built. Then, look at your financing. The cheapest money is liquid money. If you are liquid for your Franchise, you may still read this, as there are some benefits in a Self Directed Retirement Account that you will not have. The biggest benefit you will miss is deferring capital gains taxes. Impossible with liquid capital, and the opposite of a loan.

    NEVER BET THE HOUSE! That is the biggest investment most Franchisees will make. If you bet on your success with your home by taking out a 2nd mortgage, you loose your house if you fail. You may not even fail, and still loose the house. If you take only enough money for start up, and you run out of money before you become profitable, where then can you get additional funding? With a Self Directed Account, you are very liquid, in fact, it is check book control you have.

    No matter what you do, Franchising is a way to take back control of your future, and using Retirement Funds is as high-risk as the Franchise is itself, without betting the house, and paying tons of interest. If you want more information on Self Directing your IRA or 401k, contact me at 512-528-0801 or email me at joe@assetexchangestrategies.com
    Feel free to visit http://www.iratraining.com, http://www.assetexchangegroup.com and http://www.danielcordoba.com to learn more about Self Directed Retirement investing.