Jeff Dudan breaks down six ways to fund a franchise: cash, HELOC, bank loans, SBA loans, ROBS, and alternative sources like equipment leasing and private investors. He flags the real costs of each, from risking your home with a HELOC to the paperwork burden of SBA loans.
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Welcome everybody. Jeff Dooden here, and welcome back to Franchise Fridays. Here's a stat you need to know According to the International Franchise association, over 60% of new franchise owners use some sort of financing to launch their business. And the difference between the right financing move and the wrong one can determine whether your franchise thrives or struggles from day one. Today, I'm breaking down the six most common ways people successfully fund their franchise dreams, including a few creative options most people don't even know exist. If you're serious about making smart moves, stick around, because by the end of this episode, you'll have real clarity on which funding option might be just right for you. While you're here, don't forget to click in the link in the description below and grab a free copy of my book Discernment, because making better decisions is the real edge in business. All right, let's get into it first. Funding Option Good old Cash Greenbacks. It can be the quickest, but not always the smartest. If you've got cash saved up under your mattress, buried in a mason jar in the backyard, or just sitting in some sort of a savings account, paying upfront is the fastest, cleanest way to launch. There's no loan applications, no interest, and no strings. But just because you can pay cash doesn't mean you always should. Cash has an opportunity cost. It should be earning for you, not sitting around for you. And you might want to keep some sort of capital reserved for marketing, hiring, or for a rainy day fund during those early months. Think strategic, not emotional. Save cash. Cash is like oxygen. You won't know how bad you need it until you don't have any of it. Number two, a heloc. The good old home equity line of credit. If you own a home, a HELOC can be a powerful tool. Interest rates typically lower than a traditional loan, and you're borrowing against your own asset, often at lower interest rates compared to unsecured loans. If your HELOC is already set up, it's going to be quick, and many franchisees use their HELOCs to fund their initial franchise fee or their early startup costs while keeping liquidity available elsewhere. Remember, you're putting your home on the line. Make sure the risk is one that you're ready to take and you're willing to manage. Number three, traditional bank loans. Look, if you're already a business owner or you have a good relationship or you've got assets that you can leverage against, relationships matter. And you can go into your local bank, your local credit union, and it could be a Great option for you. Here's the truth most people don't want to hear. Banks will love to lend you money, but only when you don't need it. And if you're starting a new business, like a franchise, you're not going to have a traditional two year operating history that many bank lenders look for in qualifying you for a loan. So they might ask you to back it up with your cash or securities or bonds or some other asset anyway. But hey, it might be a way to keep your assets in place, to keep them earning and then to get a leveraged loan against them that you can use to start your business like your home. Again, collateral like home equity, your investment accounts or cash reserves will always help with a traditional lender. And and be prepared. The better you present your business plan and background, the better terms you're going to get. Number four, lean on the government. With an old SBA loan built for first time owners, the Small Business Administration exists to help new entrepreneurs get funded. This is where the government works together with your bank to provide a guarantee to the lender that is government backed, which lowers the risk for the lender and usually come with better rates and longer repayment periods. I've used SBA loans early in my career. Look, if you're complicated, you're probably not going to want to go the SBA route because they want a put a claim on everything. And if you've got lots of assets and lots of businesses and a very complex tax return, this might be more hassle than it's worth. But if you're new to business and you're willing to put it all online, it's a great option. Plan ahead. The SBA process can take some time. There is an SBA Express that I've heard people get in 30 days. And then there's other SBA programs that may be just right for you, but thank you government, we'll take it. All right. Number five is called the Robs. Affectionately it is stands for rollovers for business startups. Brilliant strategy, interesting strategy. A strategy that you need a professional advisor to help you with. And here's what it is. You take your 401k, your retirement accounts or your IRAs, and you actually create a corporation and you invest your retirement funds in that corporation and then that corporation basically buys the business. In this way you get to use your retirement funds for your business, but you avoid all of those early withdrawal fees or penalties or any of the taxes because technically it's still within your retirement account. Again, this is called the Robs It's a powerful compliant way to access your own money to build your future. Now, I said it once and I'll say it again, do not try this at home. You'll want a professional third party administrator guiding you to the setup. There's half a dozen of these people that operate in and around the franchise industry. You've got to make sure it's IRS compliant. They will charge you a monthly fee, they will charge you a setup fee, but if you do it wrong, you will pay the penalty. So it's doable in about 30 days. And it is a great way and a very popular way for people to fund their franchise businesses. And then look, alternative funding. There's equipment leasing groups for equipment. If you have a vehicle or you've got some sort of a piece of equipment that's going to be used in the business, you can use private capital. You can go do friends and family or even an investor. Maybe there's another business owner that wants a piece of the business and they're willing to stake your claim. And if you're willing to be the operator, look, there's all kinds of ways to structure this because there's always people that have money and there is always people that are looking to make money. I will give you a piece of advice here. Good agreements upfront, head off bad disagreements down the road. If you're borrowing from a family member or a close friend or a close friend's family member, you better be careful. Anytime somebody gets into an investment with me, I want to make sure that they're going to make a return on their investment. And I'm very careful with that because. Because relationships are the most important thing. And if you're not sure about it, I would go somewhere else to get the money. But hey, look, sometimes you pick up a great mentor, sometimes you pick up a great partner. And together you may be able to go faster and you may be able to scale bigger. So treat every dollar like it matters. Treat every dollar like it's yours, because it is. Okay, there you have it. Six smart ways to fund your franchise journey. There's no one size fits all. The right funding strategy depends on your financial situation, your risk to your long term goals and what assets you have available to you. Click the links below to learn more about franchising opportunities with Homefront brands. These are great brands for you to use your financing to get into. Explore durable, scalable business models in the property service space that are built for real growth and real scale. And as always, I offer you a free copy of my wonderful book discernment, the Business Athlete's Regimen for a Great Life Through Better Decisions. Sounds like you're making one right now. Then you can start making smarter decisions in business and life. Your future franchise deserves a strong foundation, and it starts right here. With the right funding and the right moves. I'm Jeff Duden. This is Franchise Fridays. I'll see you next week, Sam.
