Step 6 - Funding
At this point, you have a general idea of how you’re going to finance your franchise along with the specific financial requirements for your selected franchise. Now it’s time to talk to the financial service providers to custom fit a funding solution to fit your needs. Just like buying a home, it’s important to understand early what you can afford, the optimal financing formula and a pre-approval. Doing so arms you with the ability to take advantage of the right opportunity when you find it so you don’t lose your territory. Keep in mind that it usually takes a minimum of a couple of weeks to get approved for any financing and up to 8 weeks or even longer for SBA loans so it’s important that you get this step started as soon as you have an idea of the type of franchise you’ll be pursuing.
Another part of this step is setting up your LLC or corporation. You won’t put the franchise in your own name. You’ll form an LLC or a corporation and that entity will purchase the franchise. You’ll also need to file to obtain an Employer Identification Number (EIN). Between now and franchise award is the time to do this. Forming an LLC and obtaining an EIN is a simple process that your accountant or lawyer can do or you can do on your own. If you’d like referrals to professionals to do this for you, your coach can assist.
Outside of self-funding 100%, there are six primary ways to finance your new business.
Family or Friends Invest
A very common way is to have family or friends invest in your business. Depending on their expectations and your relationship with them, in exchange for their cash, you’ll either give them equity in your business, pay them back with interest as you would with a loan or they may just gift it to you. Happy day. Don’t automatically write off that last part. If you have parents or older relatives who intend to leave you money in a will after they pass, there may be good reason to give you some or all of that now in the form of a business investment!
Rollover for Business Start-up, or ROBS
Rollover for Business Start-up, or ROBS, is probably the second most attractive option. ROBS is literally taking some of your own money from a retirement account; 401(k), IRA or TSP, and instead of investing that in a mutual fund, stock or bond, you invest it in your own business! You don’t pay any interest on that because it’s your own money and the set-up is usually very fast. Obviously, you or your spouse must have retirement accounts for this option.
Home Equity Line of Credit or HELOC
If you’re a homeowner, a home equity line of credit, or HELOC, is a great option that is usually fast because it’s low risk for the bank and you can usually use your existing mortgage relationship so it can happen quickly.
SBA Loan
SBA loan can be a good option but the approval process can be up to eight weeks. Keep in mind that the SBA does not actually fund your loan. The SBA simply provides banks with a portion of the low repayment guarantee so banks can mitigate their risk. SBA loans for equipment and real estate is usually less risky because it’s collateralized by a hard asset.
Vehicles and Expensive Equipment
With franchises where you’ll need vehicles or other expensive equipment, often you’ll be able to lease those either through the manufacturer or another party. Your franchisor typically has details on this option.
Unsecured Term Loan
The last option is an unsecured term loan. You’ll need good credit and a good income because these loans are, as the name suggests, not collateralized by anything other than your good intent and ability to pay it back. Because they’re riskier, they tend to have higher interest rates. These are most often used for short term needs like working capital and paid off as quickly as possible.
You can go through your own sources or your Coach can connect you to franchise funding experts who can customize a financing solution for you.
2024 Veteran-Owned Business Resource Guide
This guide is meant to serve as a resource for you in your journey to franchise ownership. We will uncover some of the funding opportunities and resources available to you as a veteran or military spouse-owned business.
- Tax Benefits and Waivers: State tax incentives, waivers and minority business programs available.
- Education and Mentoring: Types of programs you can utilize to grow, support and gain valuable knowledge that will lead to successful outcomes. Veteran-focused networking and mentoring programs.
- Funding Streams: State programs, loan programs, grant opportunities and other resources.
- Certifications and Supplier Diversity: Certification and supplier diversity programs that focus on VOBs, SDVOBs and SVOBs that allow access to state and federal contracts.
Outside of self-funding 100%, there are six primary ways to finance your new business.
Family or Friends Invest
A very common way is to have family or friends invest in your business. Depending on their expectations and your relationship with them, in exchange for their cash, you’ll either give them equity in your business, pay them back with interest as you would with a loan or they may just gift it to you. Happy day. Don’t automatically write off that last part. If you have parents or older relatives who intend to leave you money in a will after they pass, there may be good reason to give you some or all of that now in the form of a business investment!
Rollover for Business Start-up, or ROBS
Rollover for Business Start-up, or ROBS, is probably the second most attractive option. ROBS is literally taking some of your own money from a retirement account; 401(k), IRA or TSP, and instead of investing that in a mutual fund, stock or bond, you invest it in your own business! You don’t pay any interest on that because it’s your own money and the set-up is usually very fast. Obviously, you or your spouse must have retirement accounts for this option.
Home Equity Line of Credit or HELOC
If you’re a homeowner, a home equity line of credit, or HELOC, is a great option that is usually fast because it’s low risk for the bank and you can usually use your existing mortgage relationship so it can happen quickly.
SBA Loan
SBA loan can be a good option but the approval process can be up to eight weeks. Keep in mind that the SBA does not actually fund your loan. The SBA simply provides banks with a portion of the low repayment guarantee so banks can mitigate their risk. SBA loans for equipment and real estate is usually less risky because it’s collateralized by a hard asset.
Vehicles and Expensive Equipment
With franchises where you’ll need vehicles or other expensive equipment, often you’ll be able to lease those either through the manufacturer or another party. Your franchisor typically has details on this option.
Unsecured Term Loan
The last option is an unsecured term loan. You’ll need good credit and a good income because these loans are, as the name suggests, not collateralized by anything other than your good intent and ability to pay it back. Because they’re riskier, they tend to have higher interest rates. These are most often used for short term needs like working capital and paid off as quickly as possible.
You can go through your own sources or your Coach can connect you to franchise funding experts who can customize a financing solution for you.
2024 Veteran-Owned Business Resource Guide
This guide is meant to serve as a resource for you in your journey to franchise ownership. We will uncover some of the funding opportunities and resources available to you as a veteran or military spouse-owned business.
- Tax Benefits and Waivers: State tax incentives, waivers and minority business programs available.
- Education and Mentoring: Types of programs you can utilize to grow, support and gain valuable knowledge that will lead to successful outcomes. Veteran-focused networking and mentoring programs.
- Funding Streams: State programs, loan programs, grant opportunities and other resources.
- Certifications and Supplier Diversity: Certification and supplier diversity programs that focus on VOBs, SDVOBs and SVOBs that allow access to state and federal contracts.
What You’ll Gain
- Insights into financing options
- Narrow down how you're going to fund your franchise
- Your coach will present potential options in helping set you up with the right contacts
- Get your LLC or Corporation set up
Required Tasks to Complete
You can go through your own sources or your Coach can connect you to franchise funding experts who can customize a financing solution for you.
You won’t put the franchise in your own name. You’ll form an LLC or a corporation and that entity will purchase the franchise. Your accountant or lawyer can help or you can do on your own.
*If you’d like referrals to professionals to do this for you, your Coach can assist.
This number is assigned by the IRS. Your accountant or lawyer can help or you can do on your own.
*If you’d like referrals to professionals to do this for you, your Coach can assist.
Start with watching the video above about funding your franchise. Selecting the additional tabs above will provide additional information and resources in funding opportunities.
Use your Franchise Organizer to keep track of your options and what they can do for you by using the “Step 6” tab along the bottom.
Franchise Coach:
Chris Hale
Franchise Coach:
Chris Hale
Use the notes area to keep track of your potential financing options.
When you are finished taking notes on a funding option, click the save button and the note will be saved below the form. You will then be able to start a new note.
* For the best experience when taking notes, we recommend doing so while you are on a laptop or desktop computer.
- Next Step - FDD Review
The Franchise Disclosure Document (FDD) provides a tremendous amount of depth and due diligence about the business you’re considering buying. The FDD is federally-mandated by the Federal Trade Commission (FTC). It’s for your awareness and protection.
Funding
- You have a general idea of how you’re going to finance your franchise.
- You may have specific financial requirements for your selected franchise.
- It’s time to talk to the financial service providers to custom fit a funding solution.
Goal
Set up your funding sources, LLC, and obtain an EIN
Step Completion
Outside of self-funding 100%, there are six primary ways to finance your new business.
Family or Friends Invest
A very common way is to have family or friends invest in your business. Depending on their expectations and your relationship with them, in exchange for their cash, you’ll either give them equity in your business, pay them back with interest as you would with a loan or they may just gift it to you. Happy day. Don’t automatically write off that last part. If you have parents or older relatives who intend to leave you money in a will after they pass, there may be good reason to give you some or all of that now in the form of a business investment!
Rollover for Business Start-up, or ROBS
Rollover for Business Start-up, or ROBS, is probably the second most attractive option. ROBS is literally taking some of your own money from a retirement account; 401(k), IRA or TSP, and instead of investing that in a mutual fund, stock or bond, you invest it in your own business! You don’t pay any interest on that because it’s your own money and the set-up is usually very fast. Obviously, you or your spouse must have retirement accounts for this option.
Home Equity Line of Credit or HELOC
If you’re a homeowner, a home equity line of credit, or HELOC, is a great option that is usually fast because it’s low risk for the bank and you can usually use your existing mortgage relationship so it can happen quickly.
SBA Loan
SBA loan can be a good option but the approval process can be up to eight weeks. Keep in mind that the SBA does not actually fund your loan. The SBA simply provides banks with a portion of the low repayment guarantee so banks can mitigate their risk. SBA loans for equipment and real estate is usually less risky because it’s collateralized by a hard asset.
Vehicles and Expensive Equipment
With franchises where you’ll need vehicles or other expensive equipment, often you’ll be able to lease those either through the manufacturer or another party. Your franchisor typically has details on this option.
Unsecured Term Loan
The last option is an unsecured term loan. You’ll need good credit and a good income because these loans are, as the name suggests, not collateralized by anything other than your good intent and ability to pay it back. Because they’re riskier, they tend to have higher interest rates. These are most often used for short term needs like working capital and paid off as quickly as possible.
You can go through your own sources or your Coach can connect you to franchise funding experts who can customize a financing solution for you.
2024 Veteran-Owned Business Resource Guide
This guide is meant to serve as a resource for you in your journey to franchise ownership. We will uncover some of the funding opportunities and resources available to you as a veteran or military spouse-owned business.
- Tax Benefits and Waivers: State tax incentives, waivers and minority business programs available.
- Education and Mentoring: Types of programs you can utilize to grow, support and gain valuable knowledge that will lead to successful outcomes. Veteran-focused networking and mentoring programs.
- Funding Streams: State programs, loan programs, grant opportunities and other resources.
- Certifications and Supplier Diversity: Certification and supplier diversity programs that focus on VOBs, SDVOBs and SVOBs that allow access to state and federal contracts.
Use the notes area to keep track of your potential financing options.
When you are finished taking notes on a franchise, click the save button and the note will be saved below the form. You will then be able to start a new note for the next franchise opportunity.
* For the best experience when taking notes, we recommend using a laptop or desktop computer.
- Next Step
Tasks to Complete
Track your progress by click the “Check Mark” as you complete each task.
-
Task 1
Talk with finance consultants
You can go through your own sources or your Coach can connect you to franchise funding experts who can customize a financing solution for you. -
Task 2
Set up your LLC*
You won’t put the franchise in your own name. You’ll form an LLC or a corporation and that entity will purchase the franchise. Your accountant or lawyer can help or you can do on your own. -
Task 3
File to obtain an Employer Identification Number (EIN)*
This number is assigned by the IRS. Your accountant or lawyer can help or you can do on your own.
*If you’d like referrals to professionals to do this for you, your Coach can assist.
Tasks to Complete
Franchise Glossary
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