You have read all of the information, done your due diligence and you’ve made the decision that buying a franchise is the right choice for you. As you prepare to sign on the dotted line, there’s a few important points that you’ll need to cover off – where will you get the money to finance your franchise and what kind of down payment is required?
In a time like this, it might seem somewhat daunting to make the leap to ownership when the saying ‘risk versus reward’ is perhaps more prominent than ever. The good news is, people are seeing home care franchising for the opportunity it is. Whether it’s times of economic boom or times of recession, home care isn’t a luxury – it’s a necessity.
When you open or take over a franchise, you’re making an investment. You will need to cover resources, operations support, and build the foundations for the successful future of your business. But, not everyone has the liquid capital on hand to invest in a home care business. That doesn’t mean ownership is impossible – there are options to help you finance a franchise (yes, even now!):
Get an SBA loan
A Small Business Administration (SBA) loan is a smart way of financing a franchise. SBA loans are favourable for small businesses because they generally have rates and fees that are comparable to non-guaranteed loans.
While securing financing may currently be a challenge for restaurants and fitness outlets, home care franchising still rates highly for funding due to it being an essential service provider. Currently, the SBA will automatically cover the first six months of principal, interest and fee payments for loans funded before September 27, 2020.
With interest rates being at historic lows, it’s a great opportunity to take advantage of the pro-small business lending environment and build your own home care franchise. It’s important to act fast, as you’ll need to start the SBA loan process immediately to meet the September 27 funding deadline.
If you live in the US, find out more about SBA loans here.
If you live in Canada, learn about the small business financing program here.
Like most loans, you’ll need a down payment to secure an SBA loan. SBA loans typically have lower down payment requirements than loans from banks or other financial institutions. Fortunately, there’s plenty of options available if you need to get a little strategic with your finances to get your down payment sorted:
Rollover your 401(k)
In the US, you can use your 401(k) to finance your business. If you create a C Corporation with the help of a tax attorney, CPA or other experienced third parties (usually around $2500), you can reallocate these funds with no tax penalties. Considering a business can be a great investment toward your retirement, rolling over your 401(k) could be your best option.
Leverage your home equity
If you own your home and it’s appreciated in value, you may be able to get a home equity loan or line of credit. This is a good option if you’re in a strong housing market and your interest rates are stable. If you already have some savings and just need to raise a portion of the capital, consider a home equity loan for franchise financing.
Borrow from friends and family
While it may seem like most businesses start up by bootstrapping, taking out loans or relying on angel investors, 38% of startups are actually funded by family and friends.
Asking for financial help can be awkward, but it doesn’t have to be. Make sure that you only approach trusted individuals who you have a solid relationship with, and formally set out all boundaries early on in a written agreement. Is it a loan, requiring you to pay the amount in full? Is it an investment, where your supporter expects to receive a return? Or is it a gift, where the donor doesn’t expect to be repaid? Having clear, formalized expectations fully agreed upon by all sides will save any unnecessary stresses later on.
It’s not difficult to find franchise financing – you just need to know where to look. Whether you need to have a conversation with your partner, bank or financial advisor, the sooner you get your plan in motion, the sooner you can jump on an exciting opportunity in the rapidly growing home care field.
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