Buying a franchise is a great way to own your own business and take control of your career. But sometimes, potential franchisees are daunted by the price tag of franchise investments. However, you don’t have to have a six or seven figure bank account to purchase a franchise opportunity. There are multiple ways to finance or access the money needed to buy your first franchise.

Small Business Administration Loan (SBA Loan)

Small business loans are risky for banks, simply because not everyone can successfully run their own business. However, SBA loans are backed by the Small Business Administration. So even if the individual defaults on their loan, the SBA will pay back a specified amount to the bank.

 

There are two different types of SBA loans: 7(a) loans and working capital loans. SBA 7(a) loans are more common, because they can be used for pretty much any business expenses. However, the bank will usually require a downpayment of 20-30%. Fortunately, you can use both an SBA 7(a) loan and another type of financing to get the cash you need for the down payment.

Retirement Account Financing

If you have a 401(k), IRA, or another eligible retirement account, you may be able to use what’s known as a Rollover for Business Start-ups (ROBS). A ROBS allows you access your retirement funds to invest in a business — without tax penalties or early withdrawal fees.

While this option is not without risk, especially if you don’t have a lot of funds in your retirement account, it does give you the option to start a business without going into debt by repurposing the money that you already have.

Portfolio Loans

Entrepreneurs with investment portfolios worth at least $85,000 can access a line of credit using their portfolio as collateral. The great thing about portfolio loans is they typically have extremely low interest rates. However, if the market crashes or your investments don’t pan out and your portfolio value drops, you may have to pay back the loan immediately.

Home Equity Line of Credit

Homeowners with equity in their homes may want to consider taking out a Home Equity Line of Credit (HELOC). HELOCs feature some of the lowest interest rates and flexible repayment schedules. The downside is that your house is the collateral, so if you default on the loan, the bank can foreclose on your home.

Find Partners Or Investors

If you only have a portion of the funds needed to buy a franchise, you might want to look for partners to invest with you. There are several pros to this option. For example, you may be able to find a partner with more entrepreneurial experience or industry knowledge who can help you better ensure success. However, a con is that you will have to split the profits among investors.

Personal Loan

Franchisees with excellent credit may be able to get a personal loan to fund their investment. However, personal loans are more difficult to qualify for and typically carry higher interest rates. In addition, if you default on a personal loan, it will have a devastating impact on your credit score and may leave you unable to borrow any money for years.

Unsecured Loans

Unsecured loans are risky for both the finance company and the loanee, and some franchises won’t even allow you to use one. So this is more of a last resort option. With an unsecured loan, a finance company essentially applies for and liquidates multiple credit cards on your behalf.

 

The lender then gives you those funds to invest in your business, in the hopes that you will be successful and be able to pay off the credit cards within a couple of years. However, this method can severely impact your credit score in the short term, so it is unlikely that you will be able to qualify for any other type of financing until the cards are paid off.

Additional Funding Options

If none of the options listed above are feasible for you, there is always crowdfunding or borrowing from friends and family. There are crowdfunding organizations that specifically invest in small businesses or franchises, however, this can be a time-consuming method that may or may not pay off.

 

Borrowing from family or friends is another option, but like banks, they will expect to see a return on their investment. If your business fails, you’re still on the hook for paying them back. But unlike borrowing from a bank, with this method, you’re also putting your personal relationships at risk. So keep that in mind when looking at financing options.

 

If you’re considering investing in a franchise, Right Hand Senior Care offers affordable opportunities for entrepreneurs who want to make a difference in their communities.

So what are you waiting for? Get in touch today and change your future with a Right Hand Senior Care franchise.

 

 

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