Mastering Franchise Funding: How To Secure The Capital You Need

One of the biggest challenges that stops most aspiring franchise owners before they even start is one simple question …

How will I fund my franchise?

That’s why I’m excited to share my recent conversation with Shirley Kefgen, Director of Business Development at FranFund, a premier provider of funding solutions for franchise owners.

Watch: Putting The “Fun” in Franchise Funding

Shirley and her team at FranFund help bridge the gap between aspiring franchise owners and the capital they need to make their dreams a reality.?

Our conversation delved into the most common franchise funding strategies, the current lending landscape, and how FranFund’s consultative approach can make all the difference.

Understanding the Funding Landscape

One of the first topics we tackled was the variety of funding options available for aspiring franchise owners.

Shirley highlighted several key strategies that FranFund helps clients navigate:

SBA Loans: These are the bread and butter of small business funding. Backed by the government, they offer guarantees to banks, which can cover up to 75% of the loan amount in case of default. This makes banks more willing to lend to startups. Banks also tend to favor lending for franchise investments over “start-up” businesses. With a franchise, there is a proven business model and data showing the financial performance of other franchisees within a given brand, which often gives banks more confidence and predictability.

Fleet Funding and Commercial Leasing: For businesses that require significant capital investments in equipment or vehicles, these options can be ideal.

Rollovers for Business Startups (ROBS): This innovative strategy allows individuals to roll over funds from a 401(k) or IRA into their new business without incurring taxes or penalties.

Home Equity Lines of Credit (HELOCs): These can be a viable option for those who prefer to leverage personal assets.

Portfolio Loans: Leveraging a non-retirement investment portfolio to secure a line of credit.

The Consultative Approach

FranFund’s process is highly consultative, ensuring that each client receives personalized advice based on their unique financial situation and goals.?

This approach is similar to how I operate as a franchise consultant.?

The goal is to help potential franchisees understand their options, the implications of each, and how they can combine different strategies to meet their funding needs.

Shirley emphasized the importance of providing accurate information from the outset.?

“Our feedback can only be as accurate as the data you provide,” she notes.?

This collaboration ensures that FranFund can offer the most suitable recommendations and helps clients make informed decisions.

Navigating SBA Loans

The process of securing an SBA loan can be daunting, but FranFund’s expertise simplifies it. They assist with pre-approval, which involves a soft credit inquiry and a thorough financial review. This pre-approval process has a 99% success rate, thanks to FranFund’s team of experienced lending specialists.

Once pre-approved, FranFund provides templates for business plans, budgets, and projections—essential documents that banks require. Their network of banks, familiar with startup and franchise lending, ensures that clients are matched with institutions ready to support their ventures.

The ROBS Program

The ROBS program is often misunderstood but offers a powerful way to fund a franchise. By setting up a C corporation and a new 401(k) plan, individuals can roll over funds from an existing retirement account to invest in their new business. This strategy avoids taxes and penalties while allowing entrepreneurs to diversify their retirement assets by investing in themselves.

Shirley explains, “We’re diversifying retirement assets. Instead of having a hundred thousand dollars invested in Sony and Best Buy stock, you’re investing it in your new franchise.”?

This approach empowers business owners to control their investment’s success.

The Current Economic Landscape

We also discussed the current lending environment. Despite concerns about recessions and rising interest rates, FranFund hasn’t seen a slowdown.?

Based on the latest data, the franchise industry has continued to grow significantly in 2023, following a strong 2022. The confidence of those ready to leave corporate America remains strong.

Interest rates for SBA loans are tied to the prime rate, currently higher than pre-pandemic levels but still manageable. Shirley advised looking at the numbers: a one-point increase on a $200,000 loan translates to roughly a $100 increase in monthly payments. In the grand scheme, this should not be a deal-breaker for a viable business.

Long-term Support and Growth

FranFund’s support doesn’t end once the loan is secured. They offer ongoing administration services for the ROBS program to ensure compliance with IRS and Department of Labor regulations. Additionally, they provide funding solutions for existing businesses looking to expand.

Whether it’s opening a new location, purchasing additional equipment, or scaling operations, FranFund’s consultative approach helps business owners find the right financial strategy for growth.

My conversation with Shirley reinforced the critical role that expert funding advice plays in the journey to franchise ownership.?

By understanding and leveraging the right funding options, aspiring franchisees can make informed decisions and set their businesses up for success.?

Curious About Franchising? Let’s Talk!

If you’re interested in exploring franchise ownership as an investment vehicle, wealth building strategy or pivot out of a corporate career that’s grown stale, we should talk.

I’ve spent the past decade owning, operating and scaling my own franchise businesses, along with helping countless clients as a franchise consultant.

If you like, reach out to me and let’s find a time to connect.

There’s no cost and no obligation involved - my goal is to educate and facilitate vs. trying to sell you on franchise opportunities.

If that sounds like something you want to explore, I look forward to connecting soon.

You can also visit my website or check out my Path To Freedom podcast as well.