Are you searching for the best ways to finance your franchise? If so, you’re not alone.
At Jack in the Box, some of the most common questions we receive from potential franchisees are about their financing options.
In this article, we’ll look at eight of the best ways to finance your franchise and how to pick the right one for your unique situation.
1) Franchisor Financing
One of the simplest ways to finance your franchise is through the franchisor you’re interested in doing business with.
Some brands will offer special financing options that are designed to meet the financial requirements for their brand.
At Jack in the Box, we do not offer financing directly to franchisees. However, we provide a variety of financial incentives to help you get started.
For example, we offer two incentive options for multi-unit franchisees who decide to sign up for three or more stores under our Development Incentive Program.
Multi-Unit Development Inventive Options:
- Royalty Reduction: The Royalty (which is currently 5% of Gross Sales) will be reduced to: (i) 1% of Gross Sales for the first year; (ii) 2% of Gross Sales for the second year; (iii) 3% of Gross Sales for the third year; (iv) 4% of Gross Sales for the fourth year; and (v) 5% of Gross Sales for all subsequent years.
- 0% Interest Loan: If you open the Restaurant on or before the required date in the development schedule, we will loan you $150,000 at 0% interest to be used solely for development costs associated with that restaurant. The loan will be repaid by crediting 100% of the royalty payments for that restaurant otherwise due until the loan is paid in full (i.e., payments will be made by crediting the appropriate portion of royalty payments toward the principal balance outstanding). If the particular restaurant is sold or permanently closed and the loan has not been fully repaid, the remaining principal balance is due in full.
We also honor Veterans by reducing our initial franchise fee by 25% for qualified U.S. Veterans. This decreases the total franchise fee from $50,000 to $37,500 per location.
2) SBA Loans
Small business loans are partially guaranteed by the government through the Small Business Administration (SBA) to remove some of the risk for the financial institution who issues the loan.
The SBA works with a network of approved financial organizations who frequently work with small businesses. Plus, their Lender Match tool will help you find a lender in four easy steps:
- Describe Your Needs: Answer a few questions about your business is as little as five minutes.
- Get Matched in Two Days: Receive an email with contact information of lenders who express interest in your loan.
- Talk to Lenders: Compare rates, terms, fees, and more.
- Apply for a Loan: Submit loan applications and paperwork. You’re well on your way to securing a business loan.
Financial institutions can offer better small business credit terms because the SBA partially guarantees the loan for your franchise.
When you have the SBA as your lending partner, it will reduce financial risk and enable easier access to capital for your franchising needs.
3) Commercial Bank Loans
If an SBA loan is not a good fit, franchisees can apply for a commercial loan with the bank of their choice.
Most banks will require you to have a good credit rating in order to qualify for these types of loans.
Also, you may be asked to prepare a detailed business plan before they allow you to move forward.
4) 401k Rollovers
Another option you may want to consider is funding your franchise with money from your previous or existing employer’s 401(k) plan.
Plus, the Employee Retirement Income Security Act (ERISA) will protect the cash in your 401(k) from additional taxes when it’s used to start a new business.
Tax benefits like these make 401(k) rollovers a popular way to access money and help you fund a new franchising business.
5) Business Partners
Working with one or more business partners is another common way to finance your franchise because it allows you to pool your money together.
Most entrepreneurs look for silent partners who will invest in your business and allow you to control the day-to-day operations.
If your business partners want to be more hands-on, setting up a partnership agreement gives everyone an opportunity to sort out responsibilities and expectations moving forward.
6) Stocks & Bonds
Like the 401(k) rollover we mentioned earlier, you can also use any stocks and bonds you own to create liquidity for your franchise.
Trading accounts with stocks and bonds can be overlooked sources of cash. Be sure to keep your personal accounts in mind when considering financing options.
7) Home Equity
Home equity lines of credit use your home as the collateral for your loan. Loans like these tap the potential in your home to fund your franchise.
Rates are typically lower for these types of loans. Plus, your credit line can increase alongside your home as it increases in value.
These loans are much like a checking account that allows you to use the equity in your home to purchase a franchise.
8) Friends & Family
Borrowing money from friends and family can be a tricky subject, but it can also be a great source of financing from people who believe in you.
In situations where friends and family are involved, the money is either given as a gift or borrowed outright. Other times, the money is given as a loan with expectations of when it should be repaid.
If you decide to receive money from friends and family to start a franchise, we suggest writing a contract with outlines of the repayment terms and expectations.
When everyone understands the agreement before signing, disagreements and other turbulence will be less likely to occur.
Check Out These Additional Resources
We hope this article gave you a better understanding of the best ways to finance your franchise.
Please note each financing option contains its own risks and uncertainties and it’s best to consult a financial advisor to determine which option is best for you.
At Jack in the Box, we’re looking for multi-unit franchisees who are excited to bring our craveable 24/7 menu to new markets across the country.
Here are some additional online resources you may like to check out:
If you have any questions, please contact our franchise sales and support team.