Paying For A Franchise: Considerations To Help Entrepreneurs Avoid Regret

In short

Rob Lancit writes that most buyers do not have the purchase price in cash and that many know only the conventional ways to borrow. His stated aim is to help people pay for a franchise without regretting how they did it.

He starts with preparation. Before choosing a concept, a buyer should know their credit score, assets, liabilities and net worth, and have a CPA or financial planner check the figures. He then goes through the options with the drawbacks of each. Traditional bank loans may come with small-business programs, and they also bring a long process, collateral requirements, a possible personal guarantee, and lenders who may not know franchising. SBA 7(a) loans offer longer terms and favorable rates and can cover equipment, supplies and inventory. They typically need a credit score of 650 or above, heavy paperwork and patience, and rejection rates are high. Some franchisors offer in-house financing or refer buyers to specialty lenders, which can mean conflicts of interest, less privacy and little room to negotiate.

He gives the most space to the rollover for business startups, or ROBS, which lets a buyer use retirement funds without early withdrawal penalties or taxes and without taking on debt, under strict rules that call for professional help. For buyers with weaker credit he mentions alternative lenders and raising money from family and friends, possibly in exchange for an ownership stake. The article carries a disclaimer that it is not financial advice.

Summary by the editors of this site. The original is Rob’s own writing; read the original at the source.