How will I fund my business or franchise?

Financing your franchise or business

If you have recently decided to start or purchase a business or franchise, your first consideration is how you will finance your business. Following are several options for business funding that will help you realize your dreams sooner than you think!

Invest your 401K into your business

Tapping into your 401K or other retirement account to fund your business is a great way to get started quickly and without debt. There is no tax penalty for early withdraw of this type of rollover. You can invest up to 100% of your retirement account or use a partial amount as collateral for your business loan. Several other advantages to using these funds include accelerating profitability through less debt and paying yourself a salary. In addition, you retain full control when you are investing your own funds. The 401K Rollover can be completed in as little as 3-4 weeks. There are several financial companies that specialize in this type of funding. Be sure to contact an expert to help with this type of rollover to avoid negative tax implications.

Small Business Administration Loans (SBA)

The U.S. Small Business Administration offers loans for small business. This is a loan guarantee program where the Federal Government guarantees part of the loan.  The loan originates through a bank and the SBA guarantees the funds.  This type of loan is used quite often for small businesses and offers competitive interest rates.  The SBA offers different types of loans based on the initial funding request. For franchises, there is a master list of approved franchises which speeds up the process for this type of loan.  An SBA loan can take several weeks to complete.  The process can be complex as each bank may have different requirements. A qualified applicant typically has good credit and 20-30% down payment.

Portfolio Loan – Take advantage of the equity in your portfolio

Have a portfolio rich in stocks, bonds, or mutual funds? A portfolio loan may be a great option to fund your business with the equity in your securities. They work like a revolving line of credit. The interest rates are typically low and the timetable for completing the loan process can be as little as 2-3 weeks.

Unsecured or Secured loan

A secured loan is a loan such as a home equity loan – it is secured by something you own or have equity in.  An unsecured loan does not have collateral tied to it, but you will need good credit to obtain an unsecured loan and you will probably pay a higher interest rate than for a secured loan. These loans may also be known as working capital loans.

Internal financing of Franchise Loans

There are a select few franchisors that offer internal financing for qualified applicants. For faster approval and a quicker start-up franchisor financing can be a great option. Be sure to check the interest rates, as they may be higher than other options.

Friends or Family

Do you have family or friends that would be willing to invest in your business by loaning capital to you? If you decide to go this route, avoid later disagreements by stating all terms in writing and use an attorney to write up legal documents.

Trish Benedik of Select Franchise Consulting works with several financing partners that specialize in franchise and business loans. Choose an expert in the field to assist you in analyzing your potential investment levels and help you find the best type of funding for your business venture.