A franchise is a safer way to enjoy the benefits of being an entrepreneur. Although there are many great business and franchise opportunities available, how you finance your franchise venture often determines the level of success you will enjoy. Is your personal credit good? Do you have management or strong work experience? Can you invest 35% as a down payment toward the total cost of the business? Then, you should be able to receive funding toward a franchise investment. Traditionally, there have been four ways that people finance a business:

Loans through the SBA –The SBA doesn’t lend money!  They simply work with banks to get your loan. Your chances of obtaining a loan oftentimes improve when working with the SBA; however, it will likely be more expensive (and time consuming) to obtain this method of financing.

A Bank Loan – Tell a bank that you want a loan to start a new business…you won't get money unless you can prove you don’t need the loan.  It is just the way it is. 

Home equity can be used to purchase a franchise, but our recent housing issues have taken this option away from some.

There is one method for financing a franchise that you may not be aware of. Guidant and Benetrends specialize as Retirement Account Facilitators helping clients implement unique funding solutions for their franchise purchases. You can access retirement funds to purchase a business without being subject to taxes or penalties! Redirecting your retirement funds to a more productive investment makes a lot of sense today.  No withdrawal or distribution here – simply invest your IRA or 401(k) into your new franchise! Avoid business debt! By using your retirement plan you can avoid getting a loan, stripping equity from your home and/or draining your available cash. Invest in yourself. The stock market has proven time and time again that no one will care about your money and/or investments more than you. Not only you invest your retirement account(s) into your new franchise – you can return additional profits to your plan! 

The best source of information about your financing options is the franchisor. They should be able to tell you, from experience, how likely it is for you to obtain financing from any particular source. It may also be helpful to understand the principles that underlie your ability to get financing, regardless of the lending source. There are "Cs" involved in any decision to loan money to someone: Cash, Credit, Collateral and Character. The fact is that it doesn't matter whether you go to a bank, use the SBA guarantee service or go to a friend or relative for the loan.

The same basic rules apply to any successful attempt to get credit. Here's how the four Cs work:

Cash. One of the most common misconceptions people have is that they can borrow all the money they need to open a business. Unless your personal net worth is far larger than what you need to borrow, this is almost certainly not true. For SBA loans, you'll most likely have to come up with funds—either from your own assets or other sources—probably equal to at least 30% of the total investment. 

Credit History: They want to see a track record of you borrowing money and making your payments on time. Though your home mortgage might be the best example of a large loan you have serviced well, you'll find you get almost no credit for that type of loan. Everyone realizes most people will take care of their mortgage before their other bills, so what they really want to see is a pattern involving timely payments on other types of loans. While a good credit history doesn't mean you'll get a loan, a bad one almost guarantees that you won't.

Collateral. Most lenders require you to completely secure any loan you want with personal assets sufficient to provide for 100 percent recovery if you default on the loan. In many cases, franchisors can recommend lenders with whom they have had a good experience. This may include someone other than a direct lender -- since these firms are often able to select the best source of financing from a pool of aggressive lenders. These firms are very familiar with Small Business Administration guaranteed loans.  It doesn't matter whether your business is a corporation or any other type of entity, or whether you go through the SBA process—they are going to look to you for collateral.

Character. The final condition you must meet relates to your character or reputation. Frankly, this is like your credit history—having great character won't ensure you'll receive a loan, but having a bad reputation will almost guarantee that you on't. Having strong enough character and a great reputation used to be enough to offset a lack in some of the other Cs, but those days went out the window with the S&L crisis 15 years ago, at least as far as any regulated lender is concerned. You should have a complete business plan before embarking on any new business startup for a host of other reasons besides just financing. If you don't have one, stop everything else and put it together.  The franchisor you're working with should have a lot of helpful information or even a template already developed for this purpose. Many franchisors have also set up programs with selected financial sources to facilitate rapid funding of their franchisees. In this case, they should be able to walk you through the process with a minimum of hassle for you.

Programs are offered by the: USA - Small Business Administration (SBA) Franchise Registry. In 1998 a central registry of franchise systems eligible for SBA loan guarantees was established. Since registry franchisors have been preapproved, the processing time for a franchisee being approved for a loan is shortened. To use this program a franchisee requesting SBA financial assistance needs to provide a one page certification from the franchisor stating that the prospective franchisee's contract is the same as the form approved by the registry originally. USA - Department of Veterans Affairs (VA) VetFran. The Veterans Financial Franchise Initiative (VetFran) was initiated in the early 1990s as a way for franchisors to thank members of the military for their service during the Gulf War. VetFran allows service members to pay only 10 % or less of the total initial investment cost of purchasing a franchise.

That difference between the required franchise fee and what the franchisee has available to invest is contributed by the participating franchisor as part of an "initial earned equity". Many International Franchise Association (IFA) members participate in the program. The franchisee must be able to qualify for a SBA 85% loan guarantee package. At the present time VetFran is limited to franchises with initial investments which are $ 150,000 or less.

The Small Business Administration (SBA) Registry lists names of franchise companies pre-registed and reviewed to shorten the process for SBA loan applications. Loan applications for registered franchisors can be reviewed and processed quickly and efficiently.

Listing on this Registry means that the franchise agreement does not impose unacceptable control provisions on a franchisee (which could result in affiliation with a franchisor). The lender and/or SBA must still consider and evaluate, with respect to each application for SBA financing, factors such as general eligibility, creditworthiness, conflicts of interest, character, use of proceeds, and dissemination.

We can provide you with a list of franchises onthe SBA Registry.

To be eligible for an SBA loan, the borrower must meet these criteria: