Funding Options

Funding Options

How do I fund my new franchise? There are several ways in which this can be done.

Before we review the options, it is important to note that as part of our Discovery Process, the FranCoach team will help you understand which option might be best, and then connect you with our funding partners — people who do nothing but help people fund their franchise.

1. The SBA Loan

The most common funding option. The SBA loan in many ways works like buying a house: you need cash out of pocket for the down payment — or in SBA lingo, you’re going to hear the term cash injection — and then you get the loan for the rest of the investment amount.

The criteria for the SBA loan changes over time depending on many factors, but a safe guideline is to think about needing about 20% of the loan amount in cash, and a minimum credit score of 700.

Are there other factors that could make someone ineligible for a loan? Of course there are — and that is why we’re going to connect you with the experts who do this every single day.

The SBA loan process is not going to win awards for the fastest or easiest way in which to get money. But it is the most common way, due to the fact that it is, frankly, the way most of us understand how to get a loan, and the fact that the loan amount is partially backed by the government.

2. The ROBS

A ROBS — Rollover for Business Startups — is a popular funding option that most people have never heard of.

In short, the ROBS allows you to take your existing qualified 401(k) and essentially transfer all of it, or some of it, into a new account that is then invested in your business. Basically, you are using your own money to start up your new franchise.

Unlike withdrawing money out of the 401(k), there are no penalties, nor are you taxed on it. Yes, there is a fee for the transaction, but significantly less than if it was just a withdrawal.

This funding method is usually viewed in one extreme or the other. Some people do not like it, as they can’t imagine possibly touching their precious retirement money. Others love it, because they can use their own money for their business, thus being totally in control over the return this money makes.

The ROBS process can take roughly 30 days, and can be a standalone funding option — or it can be used as the cash injection for an SBA loan. Again, our team at FranCoach works directly with the companies that handle all of this process.

3. The Unsecured Loan

For some people, looking at a simple term loan or business line of credit can make sense. These are attractive to some, as they do not require cash out of pocket and usually can fund within a few weeks.

Imagine going to buy a house and being a little short on the down payment — or perhaps you have just enough, but it completely taps your cash position. This might feel too risky for some. The unsecured loan is like being able to finance that down payment as well as the loan, thus keeping all of your cash.

Yes, the fees are a bit higher than the SBA loan, but it does not touch any of your cash.

Two Other Paths People Use

A HELOC

Another quick and not overly costly way to fund a franchise is through the equity you have already built in real estate. Having equity in your home or other real estate holdings already shows you’re a smart investor. Now, utilizing that money to fund your franchise to further grow your wealth and equity can be a wise and relatively easy process.

Cash

Good old cash. Some people are in a great cash position, do not wish to take on more debt or touch their retirement, and so they fully fund their franchise with cash. Obviously not super common — but for some, this is their path.

Finding Your Option

Like finding the best franchise to own is an incredibly individualized and personalized process, so is identifying your best funding option — and the team at FranCoach is going to help you.

Your regular update calls with your coach will help determine the timing of these funding conversations, as well as which of our funding partners to connect you with.

That is a little overview on funding.