You're passionate about finance and entrepreneurship, but is something holding you back from starting your own bookkeeping business?
Fear of failure is one of the biggest reasons that get in the way of success, but that fear is all the more reason to invest in a franchise instead. There's more proven certainty with franchises, as these ventures have an 8% higher success rate in the first two years than other small businesses.
Economic challenges are another roadblock for aspiring entrepreneurs. Sudden unemployment and lack of startup capital can force your dreams onto the back burner; meanwhile, there are resources available to get your business off the ground.
Franchise financing makes it possible for entrepreneurs like yourself to realize your potential. You also enjoy the added benefit of name recognition, built-in brand loyalty, lower inventory costs, and higher ROI.
Roadblocks aren't permanent. Turn your challenges into success within the first year. Learn more about franchise funding to start generating profits as soon as possible.
Talk to Family Members Who Can Help
This first option isn't available for many entrepreneurs; however, if you have a family member who believes in your potential and wants to invest in your dreams, receiving a loan from a trusted family member (or friend) can be a good option if the stars align.
These types of loans typically run on an honor system, but some family loans may come with contracts or stipulations. Borrowers are subject to little to no interest at all with these loans, which is not the case with the majority of business loans.
Mixing business with family can be tricky, though, and it's not always the best option for some aspiring business owners. Trust, honesty, and communication is essential for these types of deals. Only enter into a deal if both sides stick to the terms of the agreement.
Consider other funding sources, as well, but family loans can be an excellent source of franchise financing.
Get an Extended Business Credit Line
A business credit line is a flexible option for franchise funding. You can use your credit line for overhead, office upgrades, new business technology, and more. Major banks and other financial institutions offer credit lines. These loans are ideal for franchisees who have already been in business for a year or more.
Qualifying for these credit lines can be difficult.
First, you need to have a business account with a financial institution. Many institutions won't extend your credit line unless you've been running the franchise for six months and have generated at least $50,000 in revenue (not just sales.) You will likely need a fair or good credit score to qualify, as well.
Like with any loan or line of credit, you're also responsible for interest rates. Low-risk applicants are subject to much lower rates than higher risk applicants. Guarantees may put in place in the event of a loan default, which means your assets may be impacted if you can't pay back the credit.
Business Credit Cards
A business credit line can infuse anywhere from a $1,000 to hundreds of thousands of dollars into your account.
Business credit cards work similarly to business credit lines, except credit cards are technically a separate account; they not an added credit line on an existing account. It's probably one of the easiest modes of franchise financing.
Depending on your credit and income situation, you can get a business card approved within two weeks. Interest rates are also similar to business credit lines, ranging from under 10% to more than 20%. You may even get a zero percent introductory rate.
If you're diligent with your payments, a business credit card is an excellent way to build credit for your franchise needs. The better credit you have, the more likely you are to get more low-interest franchise funding.
There are no restrictions on how you can use your business credit card, so you can charge anything from franchise startup fees to office supplies on your card. Look for business cards that also issue rewards, like travel or purchase points.
It's easier to qualify for business credit cards, as opposed to credit lines. In most cases, all you need is a decent credit score, and you don't have to be in businesses for an allotted time.
Apply for an SBA Business Loan
SBA stands for the "Small Business Association." The Small Business Association is a U.S. government agency that offers SBA-approved financial assistance and education to small business owners. The SBA provides business owners with training, access to government contracts, and funding for qualified applicants.
The SBA also advocates on behalf of small businesses to congress and other government agencies.
The Benefits of an SBA-Approved Loan
The Small Business Association works with different lenders to provide franchise funding with the lowest cost. An SBA-guarantee holds a lot of weight with lending partners. This guarantee signals to lenders that you're a low-risk investment.
The SBA loan approval process is not as quick as business credit cards or credit lines. Whereas a business card get approved in a matter of days, an SBA guarantee can take as long as three months; however, it's worth the wait.
According to the official SBA website, you can get a loan for as little as $500 or as much as $5 million.
Borrowers also enjoy the following benefits:
- Lower interest rates than many non-SBA loans
- Franchise startup and operating capital
- Flexible repayment options
- Low down payment for business loans
- Flexible use of funds
Rather than issuing loans directly from the agency, the SBA partners with lenders to provide the best loan terms possible for applicants. Business owners also have access to the SBA's network of resources, including the Office of Veterans Business Development (OVBD), the SCORE mentorship program, and the Office of Women's Business Ownership.
How to Determine Eligibility
Like any other business loan process, the SBA (and SBA-approved) lenders have eligibility requirements for applicants. Loan requirements may vary between lenders, so you'll need to research and compare lender criteria.
There are two application processes; the SBA eligibility process and the lender approval process.
To receive the SBA-guarantee, you need the following requirements:
- The business must be a "for-profit" business
- No current loan defaults or payment delinquencies
- The business must be located in the United States
- Enough business owner equity on hand
The SBA also prefers that applicants exhaust every other funding possibility before applying for an SBA guarantee. This stipulation means you may be forced to apply for a traditional bank loan first. If this is the case, you would need a business plan to apply for a bank loan; for your convenience, the SBA has resources to help you write a business plan.
Types of SBA-Approved Loans and Lenders
Once the SBA approves your application, you can apply for loans through the lender match program. Expect varying eligibility requirements from within the network.
Let's start with the SBA loan programs themselves. There are four types of programs available:
1. General 7A small business loans
2. Disaster loans
4. 504 real estate and equipment Loans
As a new franchisee, you would likely apply to the general (7A) small business loan program; however, microloans are excellent if you only need a small amount of funds to complete your franchise purchase.
SBA loans cover an array of needs, including startup capital, equipment, location repairs, and more. Since eligibility requirements vary, you'll find some lenders prefer to loan to franchisees who have been in business for at least two years, while others accept new franchisees who haven't yet invested in the franchise.
The SBA also offers short-term loans, along with financial institutions and private lenders. You can receive short-term loans in as little as 36 hours.
The SBA Express Loan is the most popular short-term SBA loan. Franchisees can request up to $350,000 with 7-year extensions.
Private short-term loans typically come with higher interest rates, but these eligibility requirements have fewer restrictions. If currently improving your credit, you can take out a high-risk short-term loan; these come with higher interest rates, so paying on time is essential.
Short-term loans are good for first-time franchise purchases and fees.
Loan Options for Veterans
Veterans make up 14% of all franchise business owners, and they're eligible for special business loan programs through the SBA.
If you're a military veteran, consider applying to the Veterans Advantage Program. Veterans can enjoy fewer business loan fees, also known as fee relief.
To qualify for veteran fee relief, you (or your business partner) must meet at least one of the following requirements:
- An active duty service member
- Approved for the Transition Assistance Program (TAP)
- Honorably discharged from the military
- Military service members in the reserves
- An active member of the National Guard
Current spouses are also eligible for the Veterans Advantage program. Windowed military spouses can apply if the deceased spouse died in combat or performing any military service.
Booxkeeping also provides veterans with reduced franchise fees at 30% off; this benefit also includes expert franchising support to help veterans succeed.
Military Reservist Economic Injury Disaster Loans, also known as MREIDL loans, are available to veterans, as well. These loans cover business losses incurred when you're called up for military duty. You can also apply before you leave to keep your franchise up and running without worry.
Fund Your Franchise with a 401K
Do you have a 401K? Your retirement plan is another viable funding source for your future franchise; furthermore, you can enjoy generous benefits that you can't find with traditional business loans.
One of the best parts about 401K financing is that you are your own lender. While 401K loans do accrue interest, you pay yourself the interest, and not to a private lender. You also enjoy competitive interest rates, and they're typically lower than credit cards and private loans.
You don't have to pay tax on your 401K loan interest until the fund is paid out after you retire; this is known as "tax-deferred."
There isn't a long approval process either. Since it's your 401K, you're instantly approved for franchise fund. You don't have to pay expensive application fees, which only add to your debt load.
If you're worried about your credit, rest assured, you don't need a credit check to get a 401K loan. While you do have to apply like any other loan, your application won't be denied.
While application denials are rare, you may get denied if your assets are held in investments that don't immediately yield liquid cash, like real certain kinds of real estate investments.
401K loans have shorter terms than other business loans. A 401K loan typically has terms of five years or less, unless you're buying a new home. You can receive up to ten years with other loans.
You can't borrow as much with a 401k loan, either. Since you're borrowing against your retirement, you're only allowed to take half of your entire retirement balance. You're also restricted to a $50,000 maximum, whereas you can borrow a lot more with an SBA-approved loan, bank loan, or private lender.
Like short-term loans and microloans, 401K loans are ideal for financing your first franchise purchase, including startup fees.
Discover the Right Franchise Financing For You
There are several franchise financing options available to new, aspiring, and seasoned franchisees. Take your time to find the right funding source for your needs. To save even more money on your franchise purchase, take advantage of any and all discounts and resources available.
You're one step away from getting the capital you need to start a thriving Booxkeeping business. Refer to this guide as you begin the journey toward business ownership. Check out the blog to discover more resources, or contact us today to discuss your goals.