Franchising offers entrepreneurs a popular business model to establish their ventures by leveraging established brands and systems. However, franchise funding is essential to turn the dream of owning a franchise into reality, requiring capital investment. This article explores funding options and provides insights for aspiring franchisees to navigate the financial landscape.
Franchise funding involves the financial resources required to initiate and operate a franchise business. It covers the initial investment, working capital, and ongoing expenses needed to establish and sustain the franchise operation. The funding amount needed varies depending on factors such as the franchise brand, industry, location, ramp-up, and salary requirements.
There are several good options for franchise funding:
Personal or Other Assets: Many aspiring franchisees use personal savings and assets to fund their franchise investment. This can involve liquidating personal savings or investments or utilizing equity in your home or other real estate assets. This approach can be quicker but carries the risk of putting more of your own assets into the business without leveraging the new venture. Some new business owners may have friends/relatives that provide capital too.
Rollovers as Business Start-ups (ROBS): ROBS funding enables the use of pretax retirement funds to open a business or buy a franchise. Unlike some loans, ROBS doesn’t limit how you can spend the money. Business owners can allocate funds toward equipment, real estate, operational overhead, and paying employees—including yourself. ROBS also has the benefit of fast funding. Loans can take several months to process and be approved, while ROBS can be completed in 4-5 weeks. Working with an experienced Third-Party Administrator (TPA) is crucial to ensure compliance with all necessary steps and IRS regulations. This option allows you to use any portion of your pretax funds and start the business debt free.
SBA Loans: Small Business Administration loans are facilitated through banks we work with that specialize in start-up franchise funding. These loans carry a government guaranty or insurance policy. It offers more favorable loan terms compared to private or commercial loans, covering total project costs to get the business up and running, including working capital. While the inclusive nature of the SBA loan is beneficial, the process may take longer, and collateral may be required.
Unsecured Loans: These loans provide funding based on the individual’s current earnings, credit score, and credit history. The benefit is that no equity or collateral is required, and the funding timeline is much quicker than SBA options. However, the financing may not cover all the needs based on personal credit situation, and the loan terms are generally not as long as other options (typically 5-7 years)
Equipment Funding: This option, done through leasing or financing, provides alternatives to traditional bank and unsecured loans. It may not require equity towards the equipment purchase price and can offer tax benefits. However, this funding option is limited to equipment expenses and does not cover other franchise costs.
As a leader in franchise and small business funding solutions, Tenet Financial Group offers specialized services in 401(k) ROBS and small business funding. We review each client’s circumstances individually and determine all possibilities. The goal is to offer you the option(s) and allow you to make the best choice tailored to your individual needs.
Whether you have questions, or feedback, or need assistance with our vast funding services, we’re happy to help. You can visit tenetfinancialgroup.com or reach our consultants, Diane Rosenkrantz at Diane@tenetfinancialgroup.com or call 413-354-4662 or Dave Woggon at Dave@tenetfinancialgroup.com or call (563) 538-6071 to experience our commitment to excellence firsthand.
Sam Phelps
Director of Development
sphelps@tenetfinancialgroup.com