All About Funding your Franchise

If you are serious about considering a franchise, there are two additional things you need to begin to do (in parallel to your searching for a franchise).

Learning about how funding works.

Starting the process of securing financing for your franchise purchase.

Just as many need to get “pre-qualified” before a home purchase, so that they know what they can afford, (and how much a financial services company would lend) you will need to discuss these same things with your The Franchise Shop Consultant and consider them before purchasing a franchise.

So why must this learning occur “in parallel?” Can’t you wait until you find the right franchise, then investigate financing? The answer to this is simple:

You can’t go hunting without ammunition in your rifle!

Our investigation process is going to take anywhere from 30 to 120 days. By the time you are ready to decide on a franchise you want to have your funding in place. Depending on the funding source, this funding can take an additional 1 – 2 months. Do you want to learn AFTER you have your heart set on a particular franchise that you can’t quite afford it? Or do you want to learn that you can’t open your business in time for the peak holiday season – because you missed getting your franchise financed on time? Of course not. In any business timing is EVERYTHING..or at least very important.

For all of these reasons, the financing part of your business investment should be complete, or near completion, as you decide on a business. If not, this could delay your progress by months.

Some possibilities for financing your franchise include any one or combinations of the following:

  • Cash
  • Home Equity Line of Credit
  • Conventional Bank Loan – If you happen to have a good personal relationship with a local banker, you might talk to them to see if they do small business loans. If not, ask for a couple of references.
  • SBA Loan
  • Equity Financing
  • Retirement Account Financing
  • Franchisor Financing
  • Partners/Friends/Family/Angel Investors

Here are some more detailed comments, and references, for a few of these options…


Many financial services companies offer complete turnkey services from pre-qualifying loan applications, professionally packaging and presenting them, to securing commitments and providing ongoing assistance throughout loan closing. If you would like a current list of recommended contacts I can be of great value here.

Ideally, the franchise you are considering (or your franchise coach) has relationships with companies that specialize in financing franchises and, most importantly, are already familiar with the business models of many franchises. Because of this familiarity, working with these companies can save many entrepreneurs an enormous amount of time and effort – visiting multiple banks or searching the Internet, only to find sources that want you to submit business plans before they will even begin to consider you. And although business attorneys and accountants may be familiar with various funding sources, running clients through the full spectrum of options and assisting with all the details and paperwork is generally not part of their service mix.

Services provided by one-stop funding sources:

  • SBA Loans – they have a packager which is very important
  • Conventional Loans
  • Equipment Leases
  • Retirement Account Conversions
  • Cash Value Life Insurance Loans
  • Cash-out Mortgage Refinances
  • Loans/Partnerships with Friends/Family
  • Loans Against Marketable Securities
  • 401(k) Loans
  • Private Equity

Many are surprised to see “retirement account conversions” on this list of services. In fact, most Americans are unaware that they can use their qualified retirement plans including 401k, 403b, IRA, profit-sharing, or annuity plan funds to purchase businesses, buy franchises or start entrepreneurial ventures. These companies have developed a completely legal, completely simple plan that allows you to invest your retirement funds in YOUR own business – without early withdrawal penalties.

The best way to describe these plans is that they conceptually work somewhat like a “rollover IRA.” (However, let these representatives explain the details to you properly.) Instead of rolling your IRA funds from Fidelity Investments Equity-Income Fund to another mutual fund – you roll funds into “Joe Smith, Inc.” so as to fund your venture. When your business begins to make a profit and you can repay your loan, you can transfer these “collateral funds” back into a financial instrument of your choice.

In addition to being a great source of initial financing, these programs provide significant on- going income tax deferral strategies. If you have a combined total of $50,000 or more in your retirement account(s), you should speak with these companies about how best to use their strategies for long-term business and personal financial planning.


This is a very viable way to finance some franchises but please understand that the process takes a long time and it is important that you use a bank that knows how to package your loan. Lots of times a local bank will say they can fund your franchise and then after 30-60 days they tell you they can’t. That is why we always recommend that you use a funding sources that is aligned in the franchise world. We always have an updated list of prefered lenders.

They have a packager that will make sure you have the best chance possible to get your SBA loan. Why? Because to get an SBA loan you have to put together a package for the bank which might include your resume, business plan, tax returns etc. Also, it is important for you to understand you will have to offer collateral for the loan. Usually the bank will place a second on your home if you don’t have equipment that could collateralize the loan.

Recognizing that small businesses are an important part of our economy, the government has established through the SBA, its own loan program, the Small Business Investment Company Program (SBIC). The SBA does not make the loans but is primarily a guarantor of loans made by private and other institutions. You can find out more about the loans programs offered by the SBA .

We hope this helps. You want to collect information to compare and contrast your loan options. Besides these SBA lenders you might want to see what type of conventional loan your current bank may provide you, as well as the home equity option.

When checking out any loan options, be sure to check on:

  • Length of Loan?
  • Penalty for pre-payment?
  • Interest Rate?
  • How much is your cash injection?
  • How much equity is needed and what type of equity can you use to secure the loan?