SBA and Conventional Loans

This is a very viable way to finance some franchises but please understand that the process takes a long time and it is important that you use a bank that knows how to package your loan.

A local bank will often say they can fund your franchise and then after 30-60 days they tell you they can’t. That is why we always recommend that you use one of the funding sources above. They have a packager that will make sure you have the best chance possible to get your SBA loan. Why? Because to get an SBA loan you have to put together a package for the bank which might include your resume, business plan, tax returns etc. Also, it is important for you to understand you will have to offer collateral for the loan. Usually the bank will place a second mortgage on your home if you don’t have equipment that could collateralize the loan.

Recognizing that small businesses are an important part of our economy, the government has established through the SBA, its own loan program, the Small Business Investment Company Program (SBIC). The SBA does not make the loans but is primarily a guarantor of loans made by private and other institutions. 

Besides these SBA lenders you might want to see what type of conventional loan your current bank may provide you, as well as the home equity option.  Be sure to seek consultation from your Accountant, Finanical Advisor and Franchise Attorney.

one-stop funding sources

• SBA Loans – they have a packager which is very important
• Conventional Loans
• Equipment Leases
• Retirement Account Conversions
• Cash Value Life Insurance Loans
• Cash-out Mortgage Refinances
• Loans/Partnerships with Friends/Family
• Loans Against Marketable Securities
• 401(k) Loans
• Private Equity

Many are surprised to see “retirement account conversions” on this list of services. In fact, most Americans are unaware that they can use their qualified retirement plans including 401k, 403b, IRA, profit-sharing, or annuity plan funds to purchase businesses, buy franchises or start entrepreneurial ventures. These companies have developed a completely legal, completely simple plan that allows you to invest your retirement funds in YOUR own business – without early withdrawal penalties.

The best way to describe these plans is that they conceptually work somewhat like a “rollover IRA.” (However, let these representatives explain the details to you properly.) Instead of rolling your IRA funds from Fidelity Investments Equity-Income Fund to another mutual fund – you roll funds into “Joe Smith, Inc.” so as to fund your venture.

When your business begins to make a profit and you can repay your loan, you can transfer these “collateral funds” back into a financial instrument of your choice.

In addition to being a great source of initial financing, these programs provide significant on- going income tax deferral strategies. If you have a combined total of $50,000 or more in your retirement account(s), you should speak with these companies about how best to use their strategies for long-term business and personal financial planning.

Funding Referral Partners

Many financial services companies offer complete turnkey services from pre-qualifying loan applications, professionally packaging and presenting them, to securing commitments and providing ongoing assistance throughout loan closing. Because of this familiarity, working with these companies can save many entrepreneurs an enormous amount of time and effort – visiting multiple banks or searching the Internet, only to find sources that want you to submit business plans before they will even begin to consider you. And although business attorneys and accountants may be familiar with various funding sources, running clients through the full spectrum of options – and assisting with all the details and paperwork – is generally not part of their service mix.