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Taking the Money Step
There are many factors to consider when buying a franchise.  You have to decide what industry to enter, what form of operation your franchise will take, and which brand to represent.  No single decision is more important, however, than figuring out where the money comes from.  Very few people have enough cash on hand to buy a franchise outright.  Even for those who do, they may be better off financing at least part of the purchase and saving the cash for a rainy day, or those slow business days you will encounter while working hard to bring your new venture to profitability.  The money step is a big one, but you have plenty of franchise financing options at your fingertips.

O.P.M.
One of the first lessons investors on Wall Street learn is the meaning of those three little initials – O.P.M.  They stand for the term “other people’s money” and represent a concept that can be expressed in a more ornate phrase, “It is better to use someone else’s money to fund your investment than your own, wherever possible.”  When buying a franchise, you will have to come up with some cash on your own – this could be in the form of personal savings, an inheritance, or a severance package from the employer you’re leaving to start your own business.  But anything beyond a down payment can probably be financed, and those options are limited only by your credit rating, the strength of your business plan, the profit projections of the franchise you’re buying, and how much you’re willing to give away in order to follow the OPM path to success.

SBA Loans
The U.S. government, through its Small Business Administration, can offer assistance to the budding entrepreneur anxious to strike out on his or her own.  This federal agency does not actually loan you the money, but instead acts to guarantee a franchise loan made to you by a member institution.  The benefits are many.  People who may not qualify for a standard bank loan can find the selfsame institution willing to cut them a check if the SBA will guarantee it.  Most non-SBA business loans have a payback term of from five to seven years, while a guaranteed loan can be paid back in ten years – and even longer if a real estate purchase is part of the transaction.  The longer term obviously lowers your monthly payment.  The only downside to obtaining an SBA loan involves the extra fees necessary to do the paperwork and qualify as a loan recipient.  The overall effect is to make this capital more expensive over time.  However, if it is the only available path to funding your start-up and operational expenses, the tradeoff is probably worth it.

Self-Asset Financing
You might consider this category only a semi-OPM option, as the collateral for the loan will generally be something you or a business partner owns.  It could be your principal residence, a business property, raw land, or even something collectible like gold coins or artwork.  It is also possible to obtain a loan against the money held for you in an IRA or 401(k) plan.  This process is far better than actually cashing in those funds.  Because you are only using the money to guarantee whatever loan a bank is willing to write, there are no prepayment penalties or other taxable issues to confront.  Also in this category are family equity loans, where relatives might be willing to put up some of their own money in return for a small stake in the business or against the same type of personal assets noted above.

Venture and Angel Funding
Although investment markets for venture capital have dried up somewhat since the dot-com boom went bust, there are plenty of sources around for relatively small investments.  Whereas VCs typically sank millions of dollars into various startups, these days they’re looking to invest somewhere in the six-digit range or less.  These numbers work exceedingly well in the franchise world, where a franchise loan may total no more than $70 or $80 grand.  A similar source is the “angel” investor.  This is a wealthy individual with investment capital to lend but is not a professional investor, nor does he or she wish to run a business.  In either case, you will probably have to surrender a fair amount of equity in return for the loan.  Some VCs may demand as much as half of the business, so this option should be considered with great care.

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