The Latest on How to Fund Your Franchise Purchase

When entrepreneurs first start exploring the world of franchising, a common question that pops up is funding.  

While franchise concepts feature a wide range of prices, the amount typically represents a robust investment for most people. Though there are some enterprise-level owners with a portfolio of business opportunities and enough cash on hand to purchase a franchise outright, the majority of franchisee candidates will require some form of funding to complete a purchase. 

Thankfully, there have never been more avenues and options for securing the funding needed to buy a franchise. While most people will be familiar with the conventional financing methods, it’s highly likely there are a couple of options that have yet to be explored. Below are various funding options available to franchisees when purchasing a franchise concept! 

Conventional Bank Loans 

Many individuals begin with their own financial institutions, thanks to their ongoing patronage over the years. Before beginning the application process, it’s advisable to have credit scores and personal financials in good standing and borrowers should at least be prepared to share a rudimentary business plan. 

SBA Loans 

Among the most popular options for funding a franchise comes from loans secured through the U.S. Small Business Administration, which happens to include specific options for just this type of opportunity. The two most popular options include the Type 7(a) loans for new franchise owners and Type 504 loans that offer more flexibility, but also come with certain limitations. 

Franchisor Financing 

Not every franchisor offers their own financing, but many do handle funding through their parent companies. Others may have secured partnerships with certain third-party lending institutions to fund the purchase of their particular franchise opportunity.  

Alternative Lenders 

This isn’t a first choice for most first-time franchise owners, but for those who may be unable to secure funding through more conventional means, alternative lenders offer a solution. Borrowers can expect a higher interest rate and possibly a shorter term for repayment of the loan. 

Self-Funding 

This option is workable for certain individuals in which funding can be secured through personal savings, home equity, retirement savings, and personal assets which can be leveraged as collateral. It’s generally considered more risky than other funding sources but can be a decent option under the right circumstances. 

Crowdfunding/Angel Investors 

In a funding method that’s becoming more popular among the younger generation, many franchise ownership candidates attempt to raise the funds necessary to secure a franchise purchase through online forums. There are also angel investors and venture capitalists, but these options will typically require a substantial percentage stake in return. 

Rollovers as a Business Startup (ROBS) 

Don’t let the name fool you, as many franchise owners have used this rollover method in which they borrow against their own 401K or retirement funds to finance the purchase of a franchise without incurring penalties. This option offers numerous tax advantages, but there is a downside. If things don’t work out as planned, you could lose a lifetime of savings. 

The aforementioned funding options represent the most common avenues to finance the purchase of a franchise. Before securing the funding needed to franchise, it’s highly advisable to seek the input and assistance of a qualified financial advisor and/or accountant. Establishing a business is an important investment to make, so being confident that the funding vehicle makes the most sense based on current financial situation is crucial. 

Are You Ready to Take Your Brand to the Next Level? 

Franchise FastLane is the No. 1 Franchise Sales Organization (FSO) in the country and our mission is to responsibly drive extraordinary growth for the chosen few. If you are interested in learning more about the possibility of joining the FastLane or CarPool, please click here to submit an application. To keep up with all the latest happenings, make sure you follow us on LinkedIn, like us on Facebook, and check out our collection of photos on Instagram.