How to Purchase a Franchise with No Budget
If you think a franchise business is out of your reach, think again. With a little creativity, you can locate financing to make your franchise dream a reality.
Follow our guidelines to get started.
Determine the Loan Amount Needed
Research Total Start-Up Cost
Initial franchise costs are listed in the FDD (Franchise Disclosure Document) from your franchisor, and typically include a franchise fee, business equipment, inventory, real estate costs, business licensure and insurance coverage. You should also include professional fees for your attorney and accountant.
Add Up Existing Funds
Determine your net worth, by putting together a balance sheet of assets/liabilities. Banks may require that you invest up to 25 percent toward your franchise start-up budget. Similar to other major loans or purchases, such as a mortgage, prepare by making certain you’re up-to-date on bill payments, check your credit report and correct any errors found.
Weigh Your Franchise Financing Options
Consider a Traditional Bank Loan
If you have good credit and/or collateral, and you are funding a well-known franchise brand, you could qualify for a bank or credit union loan.
Check into Franchisor Financing Programs
Franchisors may offer discounts or special financing for military or first-time franchisees. They may also offer equipment leasing programs.
Apply for an SBA Loan
The US Small Business Administration guarantees loans from traditional banks (often with lower interest rates) to help you qualify with a lower down payment or no collateral. Certain franchises are considered SBA-approved for quicker loan decisions.
Get a Home Equity Loan
Of course, this could put your home on the line if the franchise does not do well.
Borrow from Your Retirement Account
The Rollover as Business Startup program lets you use some of your retirement savings for startup or continuing business franchising costs. A related option is securities-based borrowing. This provides a credit line so that you don’t need to withdraw from your retirement accounts. (Consult with your tax or financial advisor.)
You could approach friends or family, or take on a business partner to obtain initial franchise funding. Your investors would typically expect to share in making business decisions and/or to receive a return on their investment, of course.
To learn more about financing a franchise, contact Growth Lending Group today.