Wondering how much money you need to own a franchise? It is probably not as much as you think. At FranCoach, part of our comprehensive franchise education program includes keeping you informed about investment ranges, available funding options, and qualifications for funding. When you work with us, we will guide you through every step of the process to make franchise ownership financially attainable.
One of the biggest myths in the franchising world is that franchise owners need hundreds of thousands of dollars in cash and a net worth of over $1 million… but that is simply not true. Numerous franchise opportunities are available that cost only a fraction of that amount. Here is a basic overview of what to expect from three types of franchises. These total investment ranges comprise the franchise fee as well as start-up costs to get your doors open.
The low end of total investment for this category begins at $250K and can go up. Food-related brick-and-mortar franchises usually require a minimum of $350K and can exceed $1M. Required liquidity is typically at least $100K.
The total investment for this type ranges from $100K to $300K. About half of FranCoach’s partner franchisors fall into this category. Required liquidity is typically between $25K and $100K for office or territory-based franchises.
This category is the least common but offers a lower barrier to entry. The investment range is typically between $75K and $150K for franchises operating in a virtual environment. Required liquidity can be as low as $0, depending on which funding option you use.
If you are looking to use your own money to invest in a franchise, the ROBS Program (commonly called a “Retirement Rollover”) might be the right fit. This program allows you to roll over some or all of a qualified 401(k) or IRA to fund a franchise. You can do so without triggering the penalties or taxes typically associated with early withdrawal from these accounts. This option can offer you the chance to increase returns on your retirement fund.
The Small Business Administration (SBA) offers multiple loan options that you can use to fund your franchise. SBA Loan amounts begin around $100K and typically require 20% to 30% of the loan value as a cash injection. These loans usually require a credit score minimum of 700 and a low debt ratio. They will normally be funded within 60-90 days from the time of final approval.
Home Equity Lines of Credit, or HELOC, allow you to borrow against the personal wealth you have built through home ownership or other real estate holdings. This line of credit remains open, and you will only need to pay back what you actually use.
Self-funding your franchise in cash is, of course, also an option. This could look like spending straight from your checking account or liquidating stocks or other assets. With no fees, no interest, and a short timeline to funding, cash is an attractive option for those who have the ability to take advantage of it.
Unsecured lending includes term loans and business lines of credit. These typically offer a fast way to secure amounts up to around $150K. They can close in up to three weeks and do not require collateral. Although they may offer 0% interest for an initial time period, rates may increase after that.
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