How to Start Your Franchise Search: Financing Your Business
Buying a dog walking franchise comes with many benefits, including marketing and business support, training, and the fact that you’ll be trading under an established name.
With the backing of an established company, you will be less likely to make expensive mistakes that so often lead to the failure of new businesses. It could be money invested wisely. The question is, how should you pay for a dog care franchise?
Funding options to buy a dog walking franchise
Dog care franchise opportunities are among the least expensive franchise businesses to buy. Consequently, a dog walking franchise for sale can often be financed from your own money.
With savings accounts paying little to no interest, investing in a business could be your opportunity to get your money to work harder for you. Similarly, if you have poorly-performing investments, self-funding your business could boost your returns.
If you don’t wish to own your own money or require financing, these are the eight most common funding options:
Friends and family
Money from friends and family can be helpful for new franchise owners in getting their business off the ground. They can provide capital for things like initial inventory, equipment, etc. But it’s important to explain the risks to your lenders. If your business does not perform as expected, you may not be able to repay the debt as fast as you promised. Is a broken friendship worth the risk?
Banks, credit unions, and the SBA
There is a range of banks and credit unions that offer loans to help purchase a franchise business. You must provide collateral for the loan, and how much you can borrow ─ as well as the interest rate you will be charged ─ is dependent upon your credit rating.
It’s relatively easy to qualify for an SBA loan to buy a franchise, providing you are deemed to be creditworthy and present a good business plan.
Back in the day, most people obtained loans from banks. Nowadays thanks to new financial technology it’s much easier ─ for example, companies like Lending Club and Prosper offer loans for the purchase of franchise businesses. Rates are usually higher than those offered by banks, but competition in the market is driving these down.
401(K) rollover (ROBS)
Many people have quite a sum in their 401(K) by the time they are in their 40s. You can leverage your 401(K) by using a ROBS scheme (Rollover for Business Startups) to buy a franchise business, which allows you to access your retirement fund before you retire. This could allow you to start your business with no debt, and no interest to pay ─ which will boost your profits.
You could also seek a franchise partner, who, as well as having the cash to invest, may have business skills that you lack. If you do go down the partnership route, ensure that you put all details in a contract. You won’t have carte blanche over your business, and you’ll need to communicate well with your partner. You should also think about what happens if your partner decides he or she wants out of the business.
Home equity loans
Some people think that using home equity loans to fund a franchise business is a clever idea. But it can be expensive and risky. The interest rates on these loans are higher than other types of loans, which means that payments are likely to be high. If you default on those payments, the lender could foreclose, and you could lose your home.
You might be tempted to take cash from your credit card to help fund your business purchase, but if you cannot repay this credit quickly, it will very soon become extremely expensive. This will damage your business, and make it more likely that your business will fail.
An Ewing Marion Kauffman Foundation study found that every $1,000 of debt decreases the success rates of new businesses by 2.2%.
Using funding options offered by franchisors is quite a common method to finance the purchase of a franchise. It usually means you can buy your franchise with less capital ─ the franchisor has accepted you as a franchisee and has the experience within the business to judge that you will be able to repay the loan.
Which funding option is best for you?
The funding you choose is crucial ─ it could make or break your business. Before deciding which financing option is right for you:
Think about your personal situation
Consider your personality (are you disciplined about money, for example?)
Do your research, and weigh up the pros and cons of each funding option
Analyze the financial risks with the help of professionals (accountants and lawyers, and hire a franchise consultant)
Don’t leave anything to chance. Gain a good understanding of how the different types of financing will help you, and how they may affect your profitability.
Where do you start?
If you’re considering becoming a dog walking franchisee, take our franchise assessment to find out if you have what it takes.