How to finance your franchise.


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There are several ways you can finance the purchase of a new franchise. Aside from a traditional loan, there are four popular financing options worth considering before you make money moves.

There are four popular financing options to consider.

  1.      Rollover for Business Startups (ROBS)

This option essentially allows you to fund your franchise with your retirement savings. An ROBS gets its funding from eligible retirement accounts, such as a 401(k) or individual retirement account. These funds are rolled over and used to buy the franchise. A retirement account must have at least $50K or more in order to qualify for ROBS financing.

This form of financing is a unique alternative way to finance your franchise purchase. Considering an ROBS is not a loan, there are no monthly payments or interest fees. This option is also free of taxes or penalties.

On the other hand, moving forward with this option does put your retirement at risk, as there is no guarantee the business will succeed. You also lose out on any retirement-savings gains. Not to mention, the risk of an IRS audit may increase.

  1.      Small Business Administration (SBA) Loans

An SBA loan is another option for financing your franchise purchase. This type of loan alleviates the risk associated with lending money for business owners or entrepreneurs who don’t qualify for traditional loans.

There are various different types of SBA loan programs, including the export-assistance loan program, the 7(a) loan program or the Microlean program, among others. Each loan program is a little different and can suit a wide array of prospective and interested franchisees.

each program is a little different and can suit a wide array of interested franchisees

  1.      Home Equity Line of Credit (HELOC)

An HELOC is a line of credit secured by your home. This financing option gives you a revolving credit to use for large expenses, such as a franchise purchase. Unlike other options, an HELOC comes with a lower interest rate, which is usually tax-deductible.

In order to qualify for an HELOC, the franchisee needs to have available equity in their home. A lender usually also considers your credit score, employment history and income to gauge the value of the loan.

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  1.      Crowdfunding Financing

In recent years, crowdfunding has become a popular option for new businesses and can also be considered by a franchisee. Crowdfunding is a form of financing wherein many interested investors contribute small amounts of money to compile a large sum. Basically, anyone that’s interested in contributing has the opportunity to invest.

 

 

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