Evaluating Lending Options for Franchisee Prospects

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Candice Caruso

Traditional business lenders don’t always offer favorable status to entrepreneurs looking to invest in franchises or other business opportunities.

In some cases, this requires hopeful business owners to look outside of traditional financing options. For getting your business ownership dreams off the ground, these three alternatives are great places to begin.

1) Rollover Retirement Accounts to Fund Your Franchise

Whether you’re purchasing a franchise, starting a business from scratch or attempting to grow a franchise or business you already own and operate, you can roll funds from your 401k or other retirement accounts into your business investment plan. This option allows aspiring business owners to roll money over tax deferred and without paying a penalty – if everything is done the right way. While the process is relatively straightforward, you need to work with a third-party administration firm that is fully versed in the Employment Retirement Income Security Act (ERISA), especially as it pertains to Roll Overs for Business Startups (ROBS). Everything must be done according to strict guidelines in order to avoid penalties and/or taxes.

2) Crowdfunding and Franchising

Since the U.S. Securities and Exchange Commission (SEC) recently finalized the rules related to crowdsourcing funds for franchise businesses, there are many benefits to hopeful franchise owners, investors and the community with this type of funding. Some organizations are completely donation-based, while many are investor based. Look local when considering crowdfunding options, as the most invested donors will be looking to boost businesses within their own communities. And don’t forget to have a solid business plan to present when applying for these types of funds.

3) Microloans for Businesses

Businesses that need loans for less than $50,000 might do better to consider microloans for their financing needs. These loans offer much more favorable terms than credit cards and some bank loans. You must still approach these loans like any other and will do better, once again, to seek resources within your own community. The Small Business Administration offers microloans with repayment terms of up to six years and interest rates that vary – generally between 8 and 13 percent.

A Word to the Wise

Alternative funding sources for entrepreneurs can be far more receptive to new business ideas than traditional lenders – especially in the tight-fisted, post-recession economy. This allows more individuals to pursue their dreams of business or franchise ownership.

Options, like crowdfunding and microloans create more engagement within the community and may even create a ready-client base for businesses, as it establishes an early, vested interest in your business achieving a positive ROI for the investors.

Using your retirement funds eliminates the need for personal guarantees, but could also place your retirement nest egg at risk if your business fails. That’s what makes it so important for aspiring franchise owners to do their due diligence and ensure they are signing a contract with the right franchise. Remember these risks and benefits, and work with an experienced business-funding provider, that works within your comfort zone and places your franchise or business in a greater position for success.

Candice Caruso is the President of Pango Financial, with close to 20 years of experience in the financial services industry and 10 years as an innovative business funding expert.

For more information on Pango and its DreamSpark plan, visit pangofinancial.com.