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  • Writer's pictureJack Johnson

Exploring the Best Business Funding Options for Franchise Ownership

Absentee Franchises with Management Agreements Now Eligible for SBA Funding!

In a game-changing move, the SBA has lifted restrictions on using their loans to finance absentee franchises. If you have a franchise operating under a management agreement, you can now secure SBA funding! This is fantastic news for investor model franchisees seeking financial support. Don't miss out on this incredible opportunity to grow your business with the backing of the SBA.

Exploring the Best Business Funding Options for Franchise Ownership

Discover the Ultimate Guide to Financing Your Franchise

As a franchise owner, you are responsible for the success of your business, and that means finding ways to finance your operations and make sure you have enough capital to keep things running smoothly. In this blog post, we will explore the best business funding options for franchise owners so that you can focus on growing your business and achieve success.

1. Use an SBA Loan to Fund Your Franchise

  1. Franchise Selection: Choose a franchise that is eligible for SBA financing. Not all franchises qualify.

  2. Business Plan: Similar to any other small business, it is imperative to craft a comprehensive business plan for your franchise. This plan should encompass all essential details including operational strategies, marketing approaches, financial projections, and other pertinent information. Having such a plan in place will play a critical role when seeking an SBA loan.

  3. Loan Application: Select a lender approved to offer SBA loans. Commence the loan application process by furnishing the lender with your business plan, financial statements, personal financial information, and any other necessary documentation.

  4. Lender Review: The lender will review your application, business plan, and financial documents to assess the viability of your franchise business and your ability to repay the loan.

  5. SBA Guarantee: One of the key benefits of SBA loans is that they are partially guaranteed by the SBA, which reduces the risk for lenders. If your loan application is approved by the lender, they will submit the application to the SBA for review and guarantee approval.

  6. Credit Check and Collateral: While SBA loans are more flexible than traditional loans, lenders will still consider your credit history and may require collateral to secure the loan. Be careful not to seek other financing while going through the process.

  7. Loan Approval: Once the SBA approves the guarantee and all other loan terms are met, the loan will be approved, and you'll receive the funds within a few days.

  8. Franchise Agreement: Prior to finalizing the loan, the lender might need to review the franchise agreement to ensure that the terms are in alignment with SBA requirements.

  9. Loan Closing: Once all the documentation is in order, you'll close the loan. This involves signing the necessary paperwork and agreeing to the loan terms.

  10. Loan Repayment: You'll begin repaying the loan according to the agreed-upon schedule. SBA loans typically offer longer repayment terms and lower interest rates compared to conventional loans.

It is worth highlighting that SBA loans offer an excellent financing option for franchises. However, it's important to acknowledge that the loan process can be time-consuming and meticulous. This is because the SBA places great emphasis on ensuring the business's viability. It's also important to note that not all franchisees may meet the requirements for SBA financing. The terms of the loan will be contingent on factors such as your creditworthiness, the financial performance of the franchise, and the lender's policies.

Working with a lender experienced in SBA loans and understanding the specific requirements of your chosen franchise will help streamline the application process and increase your chances of securing the financing you need to start or expand your franchise business.

2.ROBS 401(k)/IRA Business Funding For Franchises

Rollovers as Business Startups (ROBS) is a method of financing a new business by using funds from your existing 401(k) or traditional IRA (Individual Retirement Account) without incurring early withdrawal penalties or taxes. This approach involves creating a new business entity, typically a C corporation, and using the retirement funds to invest in the corporation's stock.

Here's how the ROBS process generally works:

  1. Business Structure Creation: You establish a new C corporation for your business venture. This corporation will issue stock, and you will become an employee or officer of the corporation.

  2. 401(k)/IRA Rollover: You roll over the funds from your existing 401(k) or traditional IRA into a new retirement plan created by the corporation. This plan can be a 401(k) plan or an IRA.

  3. Purchase of Stock: The newly established retirement plan buys stock in the corporation. These funds effectively become an investment in your business.

  4. Business Operations: The corporation can now use the funds from the retirement plan to operate and grow the business. This includes covering startup costs, purchasing equipment, hiring employees, and other business-related expenses.

  5. Compliance and Maintenance: It's crucial to adhere to all legal and IRS regulations surrounding ROBS transactions. This includes ensuring that the retirement plan is properly administered and that the corporation operates within the boundaries of the law.

Benefits: Another benefit of setting up a ROBS plan is the tax advantages that come with it. By utilizing the funds in the retirement plan, your business can save on taxes. Your corporation also benefits from receiving pre-tax contributions, which can help reduce taxable income. Additionally, as long as you follow IRS guidelines, you won't be required to pay income tax on the funds that are invested in your business.

3. Build Your Franchise with a Home Equity Line of Credit

Starting a franchise business is a dream of many entrepreneurs all around the world. However, funding a business is one of the biggest challenges that aspiring business owners face. The initial investment, coupled with ongoing operational costs, can add up to a significant amount of money. But what if there was a way to access funds with fewer restrictions and lower interest rates? That's where a home equity line of credit (HELOC) comes in! In this blog post, we'll show you how to use a HELOC to fund your franchise and achieve your dream of running a successful business.

What is a home equity line of credit?

A HELOC is a type of loan that allows you to borrow against the equity of your home. The equity of your home is its value minus what you owe on your mortgage. For example, if your home is worth $500,000, and you owe $300,000 on your mortgage, your equity is $200,000. A HELOC enables you to use a part of that equity as collateral to obtain a line of credit that you can use for various purposes, including funding your franchise.

The advantages of using a home equity line of credit

One of the main advantages of using a HELOC to finance your franchise is that you can access funds cheaper and quicker than traditional funding options. The interest rates on a HELOC are generally lower than other loans, and you can draw money as you need it. This means you only pay interest on what you borrow, not on the total amount approved. Additionally, HELOCs are more flexible than traditional funding options. There are no restrictions on how you can spend the money, so you can use the funds for any business-related expense you need.

Things to Consider

Before applying for a HELOC, there are several things you need to consider. First, you need to have equity in your home. Second, you must have a good credit score and a reliable source of income. Finally, you should only borrow what you can afford to pay back. Failure to repay a HELOC could result in the loss of your home.

Steps to apply for a home equity line of credit

The first step to obtaining a HELOC is to shop around and compare different lenders' offers. You will need to provide proof of income and equity in your home. The lender will also run a credit check to determine your creditworthiness. Once you receive an offer, carefully review the terms and conditions, including the interest rate, borrowing limit, and repayment terms. After approving the offer, the lender will perform an appraisal, and once the appraisal is completed and approved, you can access your funds.

Using a home equity line of credit to invest in your franchise

Using a HELOC to fund your franchise can be a smart financial decision. Before taking out a HELOC, conduct thorough research and seek advice from a financial advisor or accounting professional to ensure that the investment is feasible and has the potential to generate enough income to repay the loan. If you choose to use a HELOC to open a franchise, ensure it is an established brand and has a good reputation in the industry.

In conclusion, using a home equity line of credit to fund your franchise can be an excellent way to get the funding you need to get your business off the ground. However, it's important to remember that a HELOC is a loan, and like any loan, it must be repaid. Before applying for a HELOC, consider your credit score and equity in your home, and ensure you only borrow what you can afford to repay. By following these steps and seeking professional advice, you can achieve your dream of owning a successful franchise business.

A Home Equity Line of Credit (HELOC) can affect your credit score, both positively and negatively.

Depending on how you manage it and how it impacts your credit utilization and payment history. Here's how a HELOC can impact your credit score:

  1. Credit Utilization: A HELOC is a type of revolving credit, similar to a credit card. The credit utilization ratio, which is the amount of credit you're using compared to your available credit limit, is an important factor in determining your credit score. If you use a significant portion of your HELOC limit, it could increase your credit utilization and potentially lower your credit score. Ideally, you should aim to keep your credit utilization ratio below 30% to maintain a positive impact on your score.

  2. Payment History: Your payment history is a major factor in determining your credit score. Making on-time payments on your HELOC can have a positive impact on your credit score. Conversely, missing payments or making late payments can significantly damage your credit score.

  3. Credit Mix: Having a mix of different types of credit accounts, such as installment loans (like mortgages) and revolving credit (like HELOCs), can have a positive impact on your credit score. However, the impact of credit mix is relatively smaller compared to factors like payment history and credit utilization.

  4. New Credit Inquiries: Applying for a HELOC may result in a hard inquiry on your credit report, which can temporarily lower your credit score by a few points. Multiple recent inquiries for new credit within a short period can have a more significant impact.

  5. Credit History Length: The length of your credit history is also a factor in your credit score. Keeping a HELOC account open for an extended period can contribute positively to the length of your credit history, assuming you manage the account responsibly.

In summary, a HELOC can impact your credit score in various ways, primarily through its effects on credit utilization, payment history, credit mix, and new credit inquiries. To ensure that your HELOC has a positive impact on your credit score:

  • Make on-time payments: Pay your HELOC on time to maintain a positive payment history.

  • Keep credit utilization low: Avoid using a high percentage of your available credit limit.

  • Monitor credit inquiries: Limit the number of credit applications you make within a short period to avoid multiple hard inquiries.

  • Maintain a diverse credit mix: Having a mix of credit types can contribute positively to your credit score.

It's important to manage your HELOC responsibly and stay aware of its impact on your credit score. If you're considering opening a HELOC, make sure you understand the terms and how it might affect your overall financial situation.


Finding the perfect funding option should not be the cause of your sleepless nights as a franchise owner. Still, instead of all the struggle, you can seek different options like Franchisor financing, SBA loan, online lenders, traditional bank loans, and peer-to-peer loans. Don't be afraid to try them all out and see which fits your situation and needs. It's not every day that an opportunity like this presents itself, so use it wisely. With enough knowledge and understanding, getting financing should come easy, and will be the first step in building a successful franchise.

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