Overcoming Franchise Funding Fears
Contributed by Franchise Financing Partner Guidant Financial Group.
You want to dip your toe into the waters of business ownership and have decided to jump into a franchise. Maybe you’ve zeroed in on which franchise is right for you or perhaps you’re still exploring the options. Whatever you decide, you’ll need a way to finance the venture, and that can be intimidating. Getting a business loan can be tricky… even as the economy begins to heal. If you’ve got money, banks and credit unions will line up to loan you even more. If you don’t have money? Well, take heart—here are some alternative funding options that can put you at the helm of your own franchise:
- 401(k) Rollover, or ROBS (Rollover as Business Startup) If you have a retirement account, there’s a way to use it to finance your entrepreneurial dreams. Here’s how it works: You form a C-Corp that will operate your new business. You create a new 401(k) into which you rollover your existing retirement account. Then the new 401(k) buys stock in the C-Corp, and you’re in business. The caveat is it needs to be set up meticulously to avoid tax and penalties. Our partners at Guidant Financial are the dream team for this sort of financing.
- Portfolio Stock Loans - Tapping the value of fully-paid stock can be a way to secure cash for your business. Investors are basically pledging the value of their stock portfolio as collateral for a loan. In the best case scenario, your stock’s value will increase over the loan period enough to cover the interest. If your money is tied up in your stock portfolio and you need cash to get your business off the ground, this is a viable option.
- Unsecured Credit It’s called “unsecured” because the debtor does not provide any collateral. If you don’t want—or are unable to—put property or equity in property up as collateral and your personal credit is very good, an unsecured line of business credit can be a good way to get your hands on start-up capital. For a new business your application will most likely include a business plan and up to three years of earnings projections.
If you’ve got ambition and drive, but lack the liquid funds to purchase your slice of the American Dream, one of these alternative funding options may be the right choice for you. Remember to investigate business opportunities and financing options diligently.
Watch out, Franchisees! 10 Franchisor Red Flags
Only a limited number of states require registration by franchisors, and franchisors are by no means required to register in states where they have no intention of selling franchises. However, if a mature franchisor appears to be consciously avoiding the registration states, this may suggest some level of internal concern about the FDD, the franchisor’s sales tactics, or the franchise system as a whole. The cover pages of the FDD will identify where the franchisor is required to register (and whether it has registered or not), and the charts in Item 20 of the FDD will explain whether the franchisor has ever sold a franchise in any of the registration states.
The Top 10 Most Famous Franchise Founders of All Time
Fearing the debate would never end (and with our coffee running out), the staff finally settled on the following (admittedly unscientific) criteria: size and longevity of operation, visibility of brand, and -- quite honestly -- how compelling we found the founder's success story. If our internal discussion about this list serves as any indication, many readers will feel we snubbed their favorite franchise founder (and someone on our staff will probably agree). So, if you think we missed someone, leave a comment below, and let the debate begin!
But she's doing it: Can franchisors treat franchisees differently?
So, what do you do, then, when your fellow franchisees start using rougher towels, or take the milkshake off of the menu? Now all of a sudden some of the inherent value in your franchise is gone. Your hotel chain is seen as declining in value, and out-of-towners stay away because they think that you, too, have taken their favorite milkshake off of the menu.