Financing a franchise may be easy, but financing a franchise territory may not. Franchise territories can range from 20K to 250K. All start-up costs of a franchise are covered by franchise loans such as the loan programs SBA lenders provide. However, the SBA does not include territory fees in their loans because lenders feel it is too risky to take on. Your ability to pay back that type of loan relies on your success in obtaining franchisees to start-up within your territory, because that's how you will make money. Suppose you purchase a territory and you don't sign on a franchisee for a year! SBA lenders don't want that risk!
Now you need to look at other financing sources. Sure, you can always turn to unconventional ways of financing a franchise territory such as turning to your home equity. But do you want to go down that road. We touched base on this in another article when we mentioned that you wouldn't hire a plumber to do the electrical in your house, so why use your home equity to finance a business!
So, where do you turn now? Well, perhaps you or your spouse has a retirement fund. If you have retirement funds of 50K or more, there are retirement rollover programs now that don't have any penalties or taxes involved when you are using any of those retirement funds to get your new business going. This is probably your best bet to purchase your territory because then your not carrying the liability of a loan. Rolling retirement funds to start-up or purchase a business is a newer concept to almost everyone, especially when there are no penalties or taxes involved.
We always thought that retirement funds could not be touched until we were of retirement age but even if we could touch them, we would draw on that fund usually carrying penalties. However, these newer IRS approved programs help you establish a corporation for your business and your new corporation will then establish it's own retirement plan. Then you can roll your existing retirement funds into your new corporations retirement plan. The retirement plan then purchases stock in your corporation. Basically, you're investing your own money into your own business rather than someone else's. Meanwhile, some of the funds can be utilized to purchase a business, whether it be for a territory or other franchise fees, a loan down payment or to purchase the entire business! This only applies if you are either leaving your present employment or if any of the funds are from a previous employer. Feel free to visit www.theslevingroup.com or email michele@theslevingroup.com to learn more.
Why doesnt the SBA include franchise territories in their loans and how am I supposed to finance the territory - To learn more about this author, visit Michele Slevin's Website.
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