Financing a Start-Up Franchise

Wanting to start a franchise is easy. Just decide to “go for it” and make it happen. On the other hand, getting the financing to invest in a start-up franchise, for most, is the tricky part.
Here are three widely used methods to get start up funds in today’s markets:

Unsecured Lines of Credit
This method is commonly used by those with moderately high personal credit scores (usually 710 FICO or above) and are able to personally guarantee the loan. The credit is “unsecured” which means there is no down-payment or other collateral (such as real property) at risk in case of loan default. This type of credit may be a good option for those who have strong credit scores with current, verifiable income sources.

Retirement Funds Rollovers
Currently there are methods for utilizing 401(k) funds to fund business purchases, including franchises, and in some cases real estate. There are a number of vendors who can assist with this type of transaction. The tax and legal formalities are managed by these companies, for a fee. This alternative may be good for those who have large to substantial retirement account balances, but may have poor credit due to foreclosures or other personal situations.

Franchisor Financing
This method is when the franchisor holds a note for part of the initial start-up costs. Those franchisors who offer this usually have faith that their business model and believes that new franchisees into their system will be successful. This means that they will be paid back on their loan. Not all franchisors offer this type of financing, but those who do, are confident of their systems. Usually this type of funding is offered to buyers who have some capital to put toward the purchase (sometimes from one of the previous options) and have good personal credit.

Funding a start-up business is an art as much as science. In most cases, a combination these methods is needed. Using the expert assistance of a franchise consultant will help you determine what blend would work for you.