Maybe it’s an idea for a new business that you’ve been nursing for years, and you’re finally ready to make it a reality. Or maybe you’ve found an existing business for sale that you are convinced you can make even more successful as its owner. Or, there’s a franchise operation that you’ve been watching and admiring, and now you’ve decided that you want a piece of the action. No matter which of these scenarios applies to your situation, there is one crucial common denominator: the need for funding. And just as businesses come in all shapes and sizes, so do the options for funding them. Based on your timeline, risk tolerance, credit history, and other factors, the best option for you might be a single solution or a combination of several options.
Understanding your options for funding your business:
With so many options available for funding a new business, it’s more important than ever to ensure your funding strategy is appropriate for your individual needs. One mistake entrepreneurs often make is underestimating their capital requirements. As a result, undercapitalization remains one of the most common reasons businesses fail today. Many entrepreneurs believe they only need sufficient capital to cover their startup costs and open the doors, then after that their customers will keep them open and profitable. Unfortunately, that is not often the case. Every new business has a “breakeven” point – that moment when the cash they receive as revenue is finally sufficient to cover all of the operating expenses. Until that moment, the business has to operate at a “loss”. There must be adequate working capital available to get the business to “breakeven” and beyond. Often that “breakeven point” is much further down the road than the owner anticipates and his or her resources are not sufficient to get him there.
Fortunately, today there are a variety of funding programs available to suit every entrepreneur’s unique funding needs. Understanding all of your options and the pros and cons of each is the first step in determining the best way to fund your business venture. The following pages detail several of the most popular options.
Overview of franchise funding options:
Using Your Retirement Funds
This program is similar to buying stock in a public company, except instead you’re investing in your own privately held company. A leading ERISA (Employee Retirement Income Security Act) attorney named Len Fischer (the founder of Benetrends Financial), pioneered this method of funding in 1983 to help small business owners maximize the benefits of their retirement plans. Thus, the very first IRA/401(k) rollover business funding plan called The Rainmaker Plan was born. Learn More
The SBA’s mission is to help entrepreneurs start or grow their business, and an SBA loan may provide the longest-term and lowest-interest loan available for your business. The most common one for small business owners is the 7(a) program, which is more generally focused on helping small businesses start and grow. The SBA does not directly lend money to business owners. Instead, small business owners secure an SBA loan through an authorized SBA lender (such as a bank). Learn More
Conventional loans can be provided by bank and non-bank lenders, but are not guaranteed by the SBA or other government entity. Any small business or franchise can apply; however, they can be difficult to obtain for startup businesses. Approval depends largely on the overall credit risk of the business. With conventional loans, the interest rate, term length, and loan amount depend on your credit rating and business revenues. Learn More
Securities Backed Line of Credit
This type of loan is backed by securities held in an investment portfolio. It is similar in concept to a home equity loan, but rather than the loan being backed by the equity in your home, it is backed by the securities held in your investment portfolio. Whether you want to launch a new business, expand one you already have, or utilize a bridge loan, this type of funding can provide you with the immediate funds to do so by allowing you to collateralize your investment portfolio, without disrupting your long-term investments or asset allocations or creating unexpected tax consequences. Learn More
Home Equity Loans
Although becoming less common, some entrepreneurs still rely on their biggest asset for cash – the equity in their homes – to finance a franchise or business purchase. Home equity loans remain relatively easy to obtain, assuming you have the required equity in your home, as well as good credit and income for repayment – but the requirements have tightened up recently. There are two types of home equity loans: a standard home equity loan that is just like a regular mortgage in that you borrow a single lump sum and repay at a fixed monthly rate; and a home equity line of credit (HELOC), where you have access to borrow smaller funds—when needed—up to a predetermined fixed amount. Learn More
Franchise Funding Strategies
Now that you know what your options are for funding, it is equally if not more important to fully plan and integrate a funding strategy appropriate for your individual needs. There are many things to take into account when planning your short- and long-term funding strategy:
Are you a first-time business owner or a multi-unit operator?
• Do you have the cash necessary to cover the capital injection needed for most loans?
• What are your short-term and long-term goals?
• What is your exit strategy? How long will you own the business?
• Are you buying an existing business vs. a startup?
All of these variables factor into determining the most appropriate funding strategy for your unique situation.
A Few Last Words
Whether you’re looking to build a business from the ground up or you want to purchase an existing business or a franchise, achieving funding will be one of your most important and difficult challenges. Knowing your options and choosing the best strategies for your unique situation will go a long way in ensuring the realization of your dream. And seeking the help of a professional funding company like Benetrends will further ensure that your business gets the best start possible.
NOTE: Every entrepreneur and situation is unique. What works for one may not be acceptable for another with the exact same financial circumstances. To come up with a personalized strategy that works best for you, you may want to consider consulting with a trusted funding expert who can review your personal financial statement and take into account your goals and preferences.
To apply and learn more about our franchise opportunity: