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Territories and Financing

Helpful Information About Territories and Financing Options

Here’s what I’ve learned and wish to share with you upfront to shape your knowledge about franchise territories. It’s important because this is the geographic region in which you can legally sell and promote your business. For many franchise businesses it’s where you’ll go to work every day.

In most cases the best territory is where you live. I don’t recommend attempting to relocate AND start a new business at the same time.

It’s simply too much for most people. However, some franchises have absentee options where the franchisee is basically just an Investor. The territory can be anywhere in the Country regardless of where you actually live. Although this is an unusual Franchise model you should be aware it may be a possibility.

Cash and Capital Requirements

As you might imagine, financial requirements vary widely for each Franchisor. Franchisors will look for a certain Net Worth and a certain Liquidity. These minimum levels exist to protect you as the buyer. These minimum levels don’t mean you’ll spend all of it on your new business, but Franchisors need to know you can live comfortably until the new business is “on its feet” and healthy. The Franchisor cannot be successful if you as the Franchisee are not successful.

Some Franchisors offer incentives to Veterans. This most often is a discount on the initial Franchise fee. Please let me know if you’ve served. And don’t forget many franchisors include First Responders for these special incentives as well.

Funding Your Future Business

Finance options most commonly can include 401K rollovers (ROBS program), SBA loans, Signature or Unsecured loans, or HELOC (Home Equity Lines of Credit). Each has its own advantages and disadvantages and you must figure out which is the right option for you. Our trusted financial specialists can assist you.

How Do You Plan to Fund Your Franchise?

I understand how important this question is for starting your business. You may be surprised at what’s available to finance your franchise. We’ve outlined some of the many ways to secure funding and build your dream. Here are several methods including pros and cons and typical requirements for each.

401k Rollovers

While we typically refer to them as 401k rollovers this type of funding can be achieved from a number of different retirement investment accounts. 401k rollovers allow you to invest up to 100% of your retirement funds into your own business without paying any early withdrawal penalties or taxes and are an extremely popular method for franchise funding.

This can also help you meet cash injection qualifications for other funding sources such as SBA and unsecured loans. 401k rollovers can offer several advantages, including less debt which accelerates profitability, immediate salary for owners, employee benefits and more. They can be achieved in as little as a few weeks.

There are several reasons why it’s better to use your 401k vs. savings or taking out a loan. First, the money in the 401k is pre-tax dollars. The money coming out of savings is after-tax dollars. And, if you opt for a loan, you’ll repay the loan with interest. Not so with a 401 rollover. Another good point is that using a 401k is great for an exit strategy: when the business is sold, all of the proceeds roll back into a retirement plan and aren’t taxed until distribution.

Unsecured Loans
Often referred to as a “signature loan” an unsecured loan is simply a loan that’s extended to a borrower based on their good credit and requires no collateral. Typically to qualify for an unsecured loan a borrower will need a minimum credit score of 700, have no derogatory credit statements and have less than 40% utilization of current credit accounts such as credit cards and other lines of credit. Unsecured loans can be secured in as little as two weeks.
SBA Loans
While the SBA (Small Business Administration) does not actually provide loans they’ll offer a loan guarantee on up to 90% of the loan to qualified borrowers making the loan more attractive and less risky to the actual lender. SBA loans can be a great method for funding your franchise. Most SBA loans can be secured within 60-90 days.
Home Equity Lines of Credit
Home equity lines of credit can be a relatively low cost method of funding your franchise. Home equity lines will typically cost 1%-3% of the value of your home with interest rates ranging from 5%-10% depending on your credit. A home equity line can be established in 30-60 days.
Finding the right plan to help ensure the success of your business can be a challenge. I’ve partnered with leading funding companies who understand every aspect of the franchise industry. Their expertise can help you find the best customized options for you.