Typically there are two ways for you as a franchisee to finance your new cleaning franchise business:
#1 – Pull some money out of your mattress. Whether it comes from a bank account, home equity line of credit or a 401/IRA “C” rollover, you can put your net worth to work for you.
When it comes to financing, the home equity lines of credit is the most fashionable method. Other folks roll their 401K or IRA into a "C" corporation and then use those funds to start the business. It might be a good idea to talk to a CPA if you don’t know what you are doing.
#2- Conventional financing. You contribute up to 30% equity and a lender finances the rest. Most lenders require collateral, typically a first or second mortgage on real estate. There will be fees and closing costs associated with these commercial business loans so the shrewd franchisee will shop it around.
A Small Business Administration (SBA) loan might be your best bet.
- The SBA will need proof that you are the owner and that you will be active in your new franchise. A good franchisor will also want to see you actively involved in your new business.
- The SBA will require you to invest 10-30% for a new franchise business loan. They want you to have some skin in the game.
- The SBA will check your credit history. If it’s not too good, start saving and become your own bank.
- If you are purchasing an existing business, the SBA will want to see an adequate cash flow & an appropriate debt/net worth ratio.
The SBA has a Preferred Lenders Program (PLP). The PLP is the SBA's way of streamlining the procedures necessary to provide financial assistance to the small business community.
Purchasing a business is very similar to planting a tree. The best time to plant a tree was 50 years ago. The next best time is today. Good luck.
