Opening a franchise requires investment capital, and many people find it a challenge to sift through the many different options. Currently, interest rates are some of the lowest that we may ever see in our lifetime, but if you are someone who isn’t comfortable taking on debt, there may be alternatives for you as well. I recommend that you speak with an experienced commercial lending company to determine your best options and am happy to provide resources.
Down below are six different ways to fund your new business. My guess is that there are a couple of options that either you didn’t know existed or wouldn’t have thought about. Lastly, a couple of options like borrowing from friends and family or using your own cash were not included but could be a possibility.
1.) SBA 7A Loan – Offers a government-backed loan of up to $5 million. The SBA does not directly lend money to a borrower. You go through an SBA-approved lender and work through that lender, and the SBA participates by guaranteeing up to 85%. The SBA will require additional paperwork, and it’s typically a lengthy application, approval, and funding process. Many lenders will want to see that the business has been operating for a couple of years, though that’s not always the case.
2.) SBA Express – The amount that you can borrow is $50k – $350k. Some of the advantages of this loan are that you can pre-qualify and receive a loan decision extremely quickly (currently within 36 hours).
If approved, the funds become available to the borrower within 90 days, but often you receive the funds much quicker. There are both term loans and lines of credit offered, and there is much less paperwork and is a simpler process than a typical SBA 7A.
3.) ROBS Program/your 401K – Allows you to utilize your retirement funds tax and penalty-free to fund your business. ROBS stands for Rollovers for Business Start-ups, and many people refer to it as a 401k plan. You don’t have to worry about getting approved, making re-payments, or high-interest rates as it is not a loan.
4.) Security backed loans – You can use your own non-retirement portfolio of stocks, bonds, mutual funds, etc. to obtain a very low-interest line of credit. The loan is secured with your hard assets (your portfolio), so interest rates are typically very favorable, and your funds can be available quickly. Also, you typically only pay interest on the money you use, so you don’t have to start paying on a lump sum at once.
5.) Leasing – If your business has equipment or vehicles, then leasing could be an option for you. It offers a quick and easy way to get needed funding without using your cash or working capital. Some of the other advantages may include up to 100% financing, possible tax benefits, and fixed monthly payments.
6.) Home equity line of credit – If you have a significant amount of equity in your home, you can use that to start a business. A HELOC, as it is called, often has a lower interest rate than many other types of loans and is typically a faster turn around time. You are borrowing against the available equity in your home, and your house is used as collateral.
