Funding Sources

Do it yourself
Cash is king! If you can afford the startup costs yourself, you don't need a loan - although it can make good business sense to pursue a loan due to potential tax benefits.

Home equity
For those whose homes have retained their value and who own or have a significant percentage of equity in their home, this time-tested source of business start-up funding is still a good alternative. You may have to go through more paperwork than you would have a few years ago, but you still can use your home as collateral to tap directly into this source of capital.

Retirement funds
The most common funding vehicle for ‘start-up’ franchises is the 401(k) rollover plan, or ERSOP (Entrepreneur Rollover Stock Ownership Plan) If you have a 401(k) or other qualifying retirement fund, you can tap into that resource without penalty as long as you follow the strict guidelines established by the IRS to promote this kind of funding option. I work with several established firms that specialize in converting 401(k) funds for use in the purchase of a business.

Business partner or investor
Many people who are interested in owning a franchise lack the money to get started. If you have the energy, drive, and skills to succeed, but have limited financial resources, consider pairing up with a money partner, angel investor, or even a venture capitalist interested in the brand or industry you've chosen. Talk to people you know and trust and share your dream in order to identify the right ‘partner’ for your venture. Also, the franchise you are interested in might also be a resource. They often know of people who are interested in investing in a business, but having someone else run the enterprise. Be creative, persistent and careful when pursuing this angle of funding.

Small Business Administration (SBA)
The SBA is a loan guarantor, not a lender! Their mission is to work with banks to encourage their investment in local businesses by absorbing some of the risk the banks incur when making a loan to a business owner. In early 2009, Congress passed the American Recovery and Reinvestment Act, which allowed the SBA to raise its loan guarantee to as much as 90 percent and temporarily eliminate fees on others. For the most current information, visit the SBA's website (www.sba.gov).

Equipment leasing
As noted above, finding a source for funding your equipment purchase or lease will increase your chances of finding money for the rest of your new business. At the very least, it will reduce the amount you need from other lenders. Check with your franchisor to see if they have relationships with one or more equipment leasing and financing sources.

Landlords
In a good economy, landlords charge high rents and tenants pay for everything. In a down economy, the reverse is true, and you can negotiate many items before signing a lease: tenant improvement allowances, free rent, or reduced rents if a mall's anchor tenant moves out. Many franchisors have specialists on staff who assist franchisees in the negotiation process. Others have relationships with commercial real estate experts who are experts in securing the best possible terms. If you are new to lease negotiations, get the help you need as the result of your negotiations will impact your bottom line for the life of the lease!

Veterans
Many programs exist for veterans of the U.S. Armed Forces. Under the SBA's Patriot Express Pilot Loan Initiative, the SBA will guarantee up to 85 percent of the loan and requires lower credit scores for approval. These loans can be used for start-up, expansion, equipment purchases, working capital, inventory, or business-occupied real estate purchases. Many franchisors offer significant discounts and incentives to veterans who are interested in becoming business owners.