Typical options include:
Bank loans
SBA loans are very popular. The SBA guarantees a percentage of the loan so it gives banks confidence to lend. The loans will require a down payment typically between 15-50% of the investment.
401(k) Business Financing
Entrepreneurs can use their 401(k) and IRA funds to buy a franchise without taking a taxable distribution or getting a loan.
Loans from a 401(k) or IRA
There are specific stipulations on how this works, but in general you can take out up to 50k in a given 12 months or the greater of $10,000 or ½ of your vested account balance.
Unsecured lines of credit
This is based on your credit score, credit behavior, and available credit. For those who qualify, they can get up to $150,000 in a credit line. This is more expensive, but easier to obtain.
Home equity lines of credit
This is one of the lowest cost options available but the collateral is the home. The current market is creating a lot of equity and relatively low payments on it. It’s something to consider.
Equipment loans
Equipment loans can be used for the items below and are often part of the funding mix.
Existing buildings, new facilities or land
Long-term machinery and equipment
Cash
Personal savings in the bank
Gift loan or partnership interests through business partners, friends, or family
People who love and believe in you want to see you succeed and often help you do it.
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