How to Buy a Franchise with No Money
Most of us have had the dream of owning our own business and taking control of our own future. Buying a franchise can many times make this a realistic option even with no experience and background as a business owner. Good franchise systems will provide training, support, guidance the business model and the experience to help someone get into business. But how do you buy a franchise business when you are short on capital and lack the funds to purchase a franchise outright? Well, there isn’t an easy answer to this, but there are options. One of the most significant benefits to buying a franchise is that there is a much higher success rate amongst franchise businesses than there is with traditional start up business ventures. This increased rate of success has helped provide a wider array of funding options for people investing in a new franchise. Franchising makes the business start-up more attractive and trackable for lenders, which they obviously like to see when considering a loan for a new business. The SBA tracks these loans as part of the SBA franchise loan process which can be found in public places such as here – https://www.sba.gov/content/franchise-findings
Typically, the primary lending options for a new franchise investment consist of the following categories, Traditional SBA Loans, Uncollateralized Lines of Credit and in today’s market, 401k Rollovers have become more popular as an investment vehicle. Each of these are unique in how they are structured and how they work, generally the only option that could work to buy a franchise with no money would be the uncollateralized line of credit. In the franchises that we have helped people open, the initial investment for an SBA loan will require a 30% down payment in collateral of the total value of the loan whereas uncollateralized lines of credit can be done literally with no money down. The issue with lines of credit becomes your personal credit score, whether you have filed any bankruptcies in the past and if you have a high debt ratio. Fortunately, the unsecured line of credit doesn’t require anything to be signed as collateral to the loan, meaning that that your risk is significantly lower. Unfortunately, because the unsecured line of credit doesn’t require any collateral, the lending institution has higher risk and is more critical as to whether they will provide the loan. This means most likely that you can’t have had any bankruptcies in the past 7 years, you should generally have a 680 credit score or higher and have existing monthly cash flow that is able to show how you will make the payments on this loan after it is accepted. Another benefit to a line of credit is that you will be able to draw from the line as needed, meaning that you only pay interest on the amount that you actually take out of the line of credit which makes this strategy more flexible and easier to manage from a cash flow standpoint.
So if you are considering how to buy a franchise with no money, the uncollateralized line of credit should be your primary option outside of looking for partners and investors to join you in your new franchise venture. Franchise Marketing Systems works with a number of small business lenders to help franchisees make this transition financially and one of the keys to a franchise transaction is to have good guidance for obtaining the money to purchase a franchise. Chris Conner and Franchise Marketing Systems (www.FranchiseMarketingSystems.com) have a group of approved lenders who are able to provide options to new franchise buyers and support them through this lending process. The numbers and long term implications of how you structure your new business loan have enormous impacts on how successful you are when you buy a franchise.
For more information on how to obtain money to buy a franchise, contact us: