How Do You Franchise a Business with No Money?

April 17, 2022

Suppose you are considering taking advantage of the numerous catering franchise opportunities on the market but do not have enough capital to follow through. In that case, this post will give you several ideas for franchising a business with no money. There are several options open to anyone excited about purchasing a franchise but doesn’t have enough capital to proceed. Entrepreneurs often have to look for funding for their businesses. It is no different from franchising. Below, we will discuss how to go about investing in a franchise. 

Franchises often cost a significant amount of money because they have business plans that have already been proven to be successful. A franchise is considered a safe investment because business owners will not face most of the startup challenges. When purchasing a franchise, you will get an established trademark and business system in return for capital investment and royalty fees. 

How Much Funding Do I Need?

You will need to determine how much money you need before looking for funding for your business venture. The cost of purchasing a franchise will vary depending on the type of business and brand you consider. The initial fee used to set up your business location can be $10,000 or $100,000. Royalties are monthly fees that you will pay the franchise for the right to operate under their brand name. Royalties range between 5% and 50% of total profits. You may also be required to pay an additional marketing fee that ranges from 1% to 4% of your total revenue. 

Additional costs related to operating a franchise include insurance, equipment, inventory, business license, and staffing. Once you figure out how much money you need to manage your business for the first few months, you now begin to search for funding. 

Choose Franchises That Offer Financing 

Franchisors understand that franchisees may lack the capital needed to start the business. If you have credit, several franchises provide credit to franchisees. Ask all potential franchisors whether they offer to fund their business partners. Franchisors do not typically front franchisees with the total cost of opening the business. The franchisor will likely require you to put up a significant investment that demonstrates your commitment to the business venture.

Also read about How Much Money Can My Franchise Make?

Apply for a Traditional Bank Loan

Banks and credit unions have loans designed to meet the needs of small businesses. You are likely to qualify for a loan from a bank or credit union if you have an excellent personal credit score (between 650 and 850), a long history of credit with banks, and a credit utilization ratio of under thirty percent. 

Banks and credit unions are more likely to offer loans to franchisees than other startup businesses because they have a business model that has been proven to work. Well-known franchises are more likely to help you qualify for a business loan than less popular ones. 

Apply for Small Business Administration Loans

The government founded the Small Business Administration to offer long-term loans with competitive rates. The organization does not provide loans but usually guarantees loans from traditional lending institutions. If you have low credit or have struggled to get a loan from banks and credit unions, the Small Business Administration is the best choice.  

There are two types of loans offered by the Small Business Administration. An SBA 7(a) loan will provide you with a maximum of $5 million to be repaid in seven to twenty-five years. The interest rate for the loan depends on the amount loaned and the duration of the loan repayment period. Entrepreneurs have used this loan for various businesses, including real estate and franchising costs. 

The SBA CDC/504 is a collaborative loan with a nonprofit Certified Development Company that provides about 40% of the necessary funding. A traditional lender like a bank or credit union offers 50% of the loan amount, and the franchisee puts up 10% of the total funds. This type of loan has many restrictions on using the funds. 

Apply for a Home Equity Loan

If you are a homeowner, you can search for home-based credit options that will provide the funding needed to purchase the franchise. Home equity loans rely on the value of your home when approving your loan. Your home’s equity is the difference between its market value and the amount you owe on the property. Even though home equity loans provide access to cash, it is advisable to consult a financial expert before putting your home on the line. An expert will ensure you are not taking on a burden that could jeopardize your home. 

Consider Your Retirement Fund

Usually, people are charged steep fees for taking money out of their retirement funds. However, these charges are not applicable when taking out cash for a rollover for a business startup. When seeking to tap into your retirement fund to purchase a franchise, you have access to the funds within a couple of weeks and at no extra cost. Rollovers for business startups allow you to buy a franchise without any money down and without approaching lenders. 

Anyone with a 403(b), 401(k), or an IRA account qualifies for a rollover for a business startup plan; all you have to do is work with a provider to access the money and pay any one-time service fee that may be necessary. 

Business Partnerships

Entrepreneurs who lack the capital needed to start a franchise often recruit a partner capable of financing the project. You can look for an investor among your family, friends, and acquaintances. If you choose a partnership, you must be ready to give up partial control of your business to your partner. Ensure that you have a comprehensive partnership agreement that clearly defines each partner’s rights, responsibilities, and allocation of profits. 

If you are trying to purchase a franchise without any money, one of these options will likely be just what you need.

Next, can read: How to Set up Digital Signage for Your Franchise

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