401(K) or IRA Rollover Loans
When you utilize a rollover program, you have access to your retirement savings that are tax-deferred and penalty-free and can be used to invest in a business. This is called Rollover for Small Business Startup by the Internal Revenue Service. When the transaction is completed, your new business now has cash to use for any business expense. Your new retirement plan will also have shares of stock that are equal to your initial investment.
If this option is your entire business strategy, this means that you’ll break even sooner since you’re opening the business with little to no debt. But keep in mind that you can pair this rollover program with a business loan for the down payment. Be sure to look at the IRS’ regulations regarding this program.
Another way to fund your franchise business is through a home equity loan or home equity line of credit (HELOC). But these are two different things. For example, a home equity loan is a lump sum that is paid off over time with a certain number of payments at a fixed rate. On the other hand, a HELOC has a revolving balance, making it more like a credit card. This type of strategy is especially good for freelancers and consultants because they can borrow when they need to, and they can even out their earnings. This means that they can pay the loan when they are able to and borrow up to their credit limit when necessary.
An angel investor provides the funding that you need to open your franchise business. These investors have a large amount of capital to invest in your business. Using their knowledge of how to open a franchise, these investors will scrutinize your franchise business plan and work with you if they believe in your idea. An added benefit of working with an angel investor is that they will provide mentorship to entrepreneurs who want to open a franchise. Additionally, they will take risk on your franchise business as they are looking for a high return on their investment.
Another strategy for funding your franchise business is venture capital. This business strategy allows you to sell a percentage of your business to a venture capitalist in exchange for capital. The capital can also come from investment banks or other financial institutions. To the investor, this is a high-risk investment, so an entrepreneur who wants to open a franchise must keep in mind that they could potentially lose the capital if the business doesn’t succeed. Owning a franchise can be a costly investment, so obtaining venture capital could be a great funding strategy for your small franchise business.