Financing Options for Franchisees

If you’re considering starting your own franchise business, the second most important decisions you’ll make (after which franchise system you choose to sign with) is how you’ll finance your franchise business.

And for good reason: the terms, rates, and type of financing you choose will effect everything from your return on equity to your daily cash flow. The good news: you have your choice of many options to find just what fits you best. From traditional lending to industry-specific alternative financing, there’s never been more options than their are today. Let’s take a look at some of these options:

Option #1: Conventional Bank Loans — In the post-recession world, these are some of the more difficult loans to come by, however they can offer the right mix of terms, rates, and flexibility for those who are able to get them. If you already have a solid relationship with your bank and/or banker, and you have relevant experience and a great credit rating, this could be the option for your… [read more]

Option #2: SBA-Backed Loans — Are you looking for the straightforward, traditional terms offered by a bank loan but can quite make the cut with today’s very stringent lending conditions? Then a loan backed by the Small Business Administration (SBA) might be right for you. The good news is that D.P. Dough is already an approved franchise system with the SBA, meaning you’ll get expedited underwriting and less hassle in applying… [read more]

Option #3: Private Money — Banks not your thing? Can’t make the cut due to lack of experience or a bad credit rating? The private money (i.e. individuals and groups with money to invest/lend) might be a great option. Rates will be higher, and many investors will expect equity or a convertible note structure, but you’ll have tremendous flexibility to set terms that make sense for your situation and no lengthy underwriting to suffer through… [read more]

Option #4: 401K Rollovers — A relative newcomer to the franchise finance scene the the 401K Rollover option. As the name implies, this program allows you to take the money you’ve built up in your 401K and “roll it over” into equity in a C-Corp that finances and owns your franchise(s). Clearly, the main caveat here is that you need to have substantial funds in your 401K in order to finance a new business, and you’ll be limited to a C-Corp structure… [read more]

Option #5: Unsecured Lines of Credit/Loans — If other forms of traditional lending won’t work for your situation, unsecured lines of credit can be used to finance your business. Similar to the line you get with a credit card, these loans can be revolving and offer great flexibility but they often carry high rates, onerous terms, or additional (and potentially steep) fees. Still, if no other options exist, they can mean quick cash in a crunch… [read more]

Option #6: Portfolio Loans — Similar to a 401K rollover, if you have a brokerage account with a substantial amount of money invested, you can leverage those funds to get money for your franchise. Similar to a margin account traders use to invest in stocks, you can get a loan using your brokerage portfolio as collateral. This can mean quick turnaround time and a revolving line, but you’ll be putting your brokerage funds at risk if your business can’t repay the loan… [read more]

Option #7: Crowdfunding — By now you’ve heard the hype about crowdfunding, and you know that you can raise crowdfunding capital for just about any idea you have–a musical project, a non-profit, a craft brewery, a new invention–and now that applies to franchises, too. Crowdfunding has been bubbling under the financial world’s surface for a number of years, the the 2012 JOBS act helped push it into the mainstream consciousness. Basically, crowdfunding is private money lending pooled through a syndication vehicle, usually administered by a third party… [read more]

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