Now that you’ve decided you want the freedom and success of owning a fitness franchise, you must determine which financing method is best for your situation. It’s important to understand the difference between franchise business opportunities and independent businesses.
When requesting funding from traditional commercial sources, such as banks and credit unions, you’re more likely to be funded when applying for financing for a franchise. Financial institutes understand that franchises offer a proven business system. Their success rate can be measured and quantified as part of the loan process. A new, independent business, on the other hand, may only be an idea for which someone has created a business plan. Franchise opportunities come with a history.
Choices for financing a new business include:
- Credit Lines: If you don’t want to take out a loan to open your business, you may be able to secure a credit line using existing property or a current business. You will need to have equity built up within that property or the line of credit won’t be approved, of course. A credit line is a good choice because it offers the best flexibility for repaying the borrowed money.
- Unsecured Loans: If you have a great credit score, but not a lot of available equity, you may be able to borrow additional money with just your signature through an unsecured “signature” loan. The loan may be limited to $50,000 to $75,000, but is a better option than using a high-interest credit card for funds.
- Leases: You may also consider looking into leasing for your equipment, computers, or vehicles. This choice allows you to possess the necessary assets without using your collateral or tapping into existing credit lines. In 2019, almost 80% of all American businesses leased equipment, in part because of the potential tax advantages that are available with leasing.
- Leverage Retirement Assets: Perhaps you’ve already worked many years and built up significant savings for retirement. Now is the time to open your own business franchise. One popular method of financing your franchising is called Debt-Free Funding. This process uses the rollover from a 401k or other retirement account. You basically use your own money as a loan and pay yourself back with interest as your business earns profits. Leveraging your retirement assets can be done without any early distribution taxes or penalties. Most 401k accounts are passive and invest in mutual funds or stocks, but with a loan for your franchise, you can proactively influence your rate of return. You can also create retirement accounts within your franchise, making contributions that also defer income with lower taxes.
- Traditional Commercial Loans: Commercial lending institutes look favorably on franchise businesses, because they generate revenue, unlike a loan for a home, car, or another asset. A loan for a franchise is likely to be repaid because of this income, making it capable of servicing its own debt. Franchises that are listed on the Small Business Administration (SBA) registry are even more likely to be approved by banks, possibly with better loan terms. SBA-approved business loans can also include franchise fees, tenant improvements, training travel expenses, pre-marketing investments, closing costs, and in some cases, working capital.
These options are all viable choices for funding your new franchise business. Review the available choices and select the one that you feel will be most beneficial to your needs and your situation. After that, it’s time to step out and begin your franchise journey.