The capital investment required for a franchise can be substantial. When you don’t have that kind of capital, you may ask yourself: How can I finance a franchise with no money?
Whether you are a new entrepreneur with no funds or an established business owner with your capital invested elsewhere, you don’t have to miss out on all the opportunities to buy a promising franchise.
In this article, we explore how you can buy a franchise without money by examining different franchising loans and how to get them.
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How to Finance a Franchise With No Money: What to Know
Are you looking for how to buy a fast-food franchise, a real estate franchise, or any other franchise? Keep reading to discover different business loans you can obtain for a franchise.
Types of Business Loans and Lines of Credit
Depending on the projected revenue of the business, a bank may offer you a loan. You can also get a franchising loan or line of credit from private lending institutions. There is a wide array of secured and unsecured loan options you can explore to see which business loan for a franchise best suits your needs.
SBA Loans
SBA loans help small businesses get loans from commercial lenders through a government guarantee. Because this option is sometimes easier than getting a direct loan from the bank, it is pretty popular amongst aspiring franchisees wondering how to get a loan to open a franchise. Another aspect to know about SBA loans is that they typically require collateral, which makes them similar to secured loans.
Secured Loans
A secured loan is usually obtained by putting up collateral. While the interest rates can be lower than other loan options, a secured loan can also be a riskier option for borrowers. If you default on payments for a secured business loan, the collateral you put up is at risk. As a result, you may lose your hard-earned business assets if you end up defaulting on a secured business loan.
Unsecured Loans
An unsecured business loan is another type of loan a business owner seeks out when in need of capital. Unlike secured loans, an unsecured business loan or line of credit doesn’t require collateral. This is a less risky borrowing option as there is no danger of losing your assets. Unsecured franchising loans also allow more flexibility in what the loan can be used for. Unsecured business loans can be used for business expenses like working capital and franchise start-up costs.
Secured and Unsecured Business Loans: Which is Best?
The main types of business franchise loans you will encounter are secured and unsecured loans. To make the right financial decision for your new franchise, it is important to understand the difference between these two types of loans.
Secured loans offer lower interest rates and longer repayments terms than unsecured loans. However, you risk losing collateral to the lender if you default on your loan payments. The requirement for collateral also makes obtaining a secured loan more difficult. This is also true for SBA loans. Unfortunately, obtaining these types of loans can be challenging compared to other business loans when starting up a franchise.
Rather than giving up on your franchise business venture, another option to consider is an unsecured loan. Unsecured loans are based on the borrower’s credit-worthiness and don’t require collateral, which makes them more accessible to business owners. No collateral requirements also mean you won’t risk losing your business assets when choosing an unsecured loan. Along with the loan’s flexibility, an unsecured business loan allows business owners to better achieve their business goals with the necessary capital.
Other Financing Options to Consider
In addition to secured and unsecured financing, there are other unique options available when financing a franchise. Two options that business owners can consider include leveraging a 401k rollover and equity loans.
Leveraging a 401k Rollover
Rollover as business start-ups or ROBS is a type of financing arrangement where a business owner can use retirement funds to cover business start-ups costs. This option allows business owners to rollover the assets in their 401k or other retirement accounts to a new ROBS plan. Then, the assets in this ROBS plan can be used for covering the costs of a new business or franchise. This option is beneficial because it allows a business to access funding in their retirement account before the age indicated by the IRS. Thus, business owners won’t encounter penalties or early distribution taxes associated with withdrawing from their 401k early. However, this does put a franchisee’s retirement savings at risk. Considering the funds available and weighing the potential risks involved is essential.
Equity Financing
Equity financing is a straightforward loan option to consider when financing a new franchise. A common example of equity financing is a home equity loan. This type of loan uses the borrower’s home as collateral if that borrower defaults on the loan. Essentially, a home equity loan is a second mortgage on a home. Home equity loans can be a risky option because the business owner is using their home as collateral. If their new business does not generate enough revenue for the business owner to repay the loan, they risk losing their home.
Finding the Right Franchise Loan Lender
There are various options to consider when it comes to business loans. While traditional banks and SBAs offer franchising loans and other investment loans to business owners, you can also get unsecured loans through private debt funds and merchant cash advances. However, alternative lenders might be your best bet for securing a business loan for a franchise or any other investment.
Choosing the right business loan lender can make or break your business. It is important to know that some loans work better for certain business needs than others. But, it is also crucial to find the right lender that can offer the best terms. If you are seeking unsecured funding, it is always beneficial to approach lenders that specialize in unsecured loan products and have a record of success in granting unsecured business loans for franchises.
Enhance Your Company’s Success With UFS
Wondering how to finance a franchise with no money? By partnering with UFS, you can locate a fitting lender that offers ideal franchising loan terms. With over 15 years of experience in connecting borrowers with high-quality lenders, UFS is well-equipped to locate a unique unsecured business loan that meets your needs. Whether you’re starting a new business or purchasing a franchise, the UFS team is dedicated to helping your business succeed.
Ready to get started with funding your new franchise venture? Visit UFS online to apply for a loan and get your loan approved in as little as 48 hours.