Today, we're going to talk about how you can buy a franchise with no money down. Now, as someone who owns 2 franchise locations, thinking about how to pay for those franchises... it’s probably one of the biggest decisions that you'll ever make. So, we're going to go over how you can actually buy a franchise with no money down.
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Before we get into that, we need to talk about the most important point. What franchises do you want to buy and how much money do you need?
So, I understand that you may not have money, but in order to get involved with the franchise, you're going to have to come up with that money in some way, shape or form. Now, stick with me here.
As an example, if you want to buy a franchise that cost $50,000, we need to figure out a different way to get that $50,000, even if you don't have it yourself. When I worked as a national speaker for Tony Robbins, I would travel around the country and work with a lot of entrepreneurs speaking to them and coaching them, and one of the things that Tony Robbins would always say is, “It's never about your resources, it's always about your resourcefulness.” Even if you don't have money (which are the resources), you've got to be resourceful.
There are a lot of entrepreneurs that had an idea and that we're excited about a business or a concept that had no money at all and they figured out a way to get the money so that they can fund the business.
The first thing you can do if you want to open a franchise with no money down is go to your friends and family. Look, I understand that's something you may not want to do, sometimes that's the toughest conversation... asking friends and family for money. But I would assume if you're willing to open a franchise and you have some skill sets, you have a certain level of intelligence and a certain level of ambition. So, assuming that you have a good reputation and a good rapport with your friends and family, then that's the first place that you can go to get money to fund your franchise.
Now, when you're approaching them for the money, it's important to be tactical and strategic about it, and you don't just say, “Hey, can I borrow $10,000? Can I borrow $20,000? Can I have $50,000?” you have to go into it strategically. So, go into it with a business plan. “This is the franchise that I want to buy. This is the amount of money that I need to get started. This is the amount of money that I think I will make with the franchise. This is the time period which I can pay… pay the money back to you and get on that loan repayment plan.”
Another way to approach getting money from friends and… friends and family to fund your franchise is to ask them to be a partner with you. Although they may not want to work in the franchise themselves, maybe they're more willing to give you money or lend you money for the franchise if they are an owner or an investor with you. So, maybe you're the one that runs the franchise and you handle the day-to-day operations, the sales, managing the staff managing the overall business, and they get a percentage of the profits as a way of paying them back.
The next way that you can fund a franchise is to get a loan. In getting a loan to open a franchise business, it's important to note that, 1, you're going to need to have good credit, and 2, you're going to need to have an income that can support paying back that loan, and 3, the likelihood is you are still going to need money for the down payment on that loan.
If you get us an SBA loan, which is Small Business Administration, they require a minimum of 10% down from you in order to fund that business. So, what does that mean? If you need $100,000 for your franchise business, then that means you need to come up with $10,000 in order to here that loan. So, the question is how will you come up with that $10,000. And there's a number of options that we'll go over in a second of how you can do that.
One way you can do that is what we already talked about which is … getting money from friends or family. Even with the Small Business Administration having a 10% minimum requirement that you have to put towards the loan in order to open a business, most lenders that issue SBA loans are going to require anywhere from 20% to 30% in order for you to secure that loan. So, again, in that example, if you're looking to open up a business that's a total of $100,000, you're going to have to figure out a way to come up with 20 to $30,000 in order to secure that loan.
In a second, I'm going to tell you about a strategy of exactly how you can do that without having to ask your friends or family for money.
Another way that you can fund a franchise without having any money so to say is seeing if you have any 401(k) or retirement plans. Now, as someone who has managed over 100 million dollars over the course of my career as a financial advisor, typically I would not recommend for someone to take money out of their 401(k), and that's not what I'm recommending to you, so I want to make sure that you get that clear because there are severe penalties and tax consequences that you should consult the tax advisor about. But there are ways that you can leverage your 401(k) so if you're still working with your employer, you can take out a loan against your 401(k) in order to fund a business.
When you take out a loan, there's one thing that you have to be very careful about. The thing that you have to be careful about is that, if you leave that employer and you have an outstanding loan, they are going to make you repay that loan within a certain period of time, usually it's 60 days. If that is the case, if you don't come up with the money and repay the loan for the 401(k), they count it as an early distribution, you're going to have to pay taxes on that money, depending upon if it's a pre-tax 401(k), and you may have to pay some penalties. So, be very careful and do your due diligence on that.
One of the last ways that you can fund your franchise and pay for the franchise with no money down is to actually use a home equity loan to pay for the business.
When my wife and I opened up our first location, we were going to need … just over $300,000 in order to get our first location open. We had a significant equity in our home at that time and we went ahead and applied for a home equity loan, we secured a $310,000 home equity loan, used that home equity loan to fund the business and to pay for the business.
About a year or so later, we actually wound up moving, we sold our house, the home equity loan was paid for, paid off, and now we own the franchise in the business completely outright, we don't have any loans on the business.
And then the last way that you can potentially buy or open a franchise with absolutely no money is to talk to the franchisor.
Again, it's not about the resources, it's about your resourcefulness. So, it never hurts to ask them and to make a pitch if you're truly excited and confident about the opportunity.
When we opened up our first franchisee location, we were able to become profitable in our second month of being open, and I've created a blueprint that reveals exactly how I did it and how you can do it too. Make sure to grab my FREE eBook: "Zero to Profitable Franchise in Less Than 12 Months".