Spotlight on Service – Customized Funding Solutions

What does FranFund do?

FranFund helps entrepreneurs realize their dream of business ownership by providing access to capital. We built our reputation in the franchise world by pioneering the concept of offering a portfolio of funding solutions under one roof, or simply put, one-stop-shopping. Our team works with each client to develop a customized strategy that fits their situation, whether it is launching a new business, expanding a current one or acquiring an existing business.

What makes FranFund different?

In our business, it’s all about building relationships that last and no one does it quite like us. We are very proud to say that over 90% of our clients come from referrals. When our clients choose FranFund, a dedicated financial consultant will be there to guide them through the process of determining the best capitalization strategy for their specific situation and answer all of their questions.

In addition, we have long-standing, exclusive relationships with major financial institutions, wealth managers, franchise bankers and small business specialists that when combined, offer a complete solution from the very start of a business all the way to the exit strategy.

I think we all remember the credit crisis that began in 2008, which significantly reduced or eliminated lending for business startups. Is there capital available today for aspiring entrepreneurs? Yes, there are funding solutions available.

Banks are more conservative now in the way they analyze credit and underwrite loans, but we have created a process that enables us to navigate those waters smoothly. There are more options available today through crowdfunding and other non-bank lending, but we see the majority of franchise deals funded using one of three basic types of lending, all of which are offered by FranFund. Those three types are Unsecured Loans, SBA Loans and a vehicle affectionately called ROBS by the IRS. ROBS stands for Rollover for Business Start-up and this is the number one way that we see franchises being funded today.

How does the ROBS program work?

ROBS is a process where a person can take up to 100% of their retirement assets and invest them into a small business without taking a taxable distribution or creating any debt. Though you may not have heard  of this program, it is completely legal, and in fact has been in existence since the ERISA (Employee Retirement Income Security Act) Act of 1974. There are several advantages for using this option.

One very important feature is that credit score and financial strength are not a factor; there are no qualifications to meet since there is no loan being requested. If these funds are able to cover the entire project cost, then there will be no loan payments and the business will reach breakeven sooner. Another beneficial feature is that these funds can be used to pay the client a salary during the critical start-up phase of the new business, before the business begins generating revenue. This is especially attractive if someone has left their employer to begin their new franchise.

The process itself is relatively simple. The first step is for FranFund to establish a corporation for the client in the state where the business will operate. Next, we create a new 401(k) Profit Sharing plan for the new business, and roll or transfer up to 100% of their existing retirement assets into this new plan. Finally, the new 401(k) plan invests in the stock of the new corporation. At the end of this transaction, the 401(k) plan owns shares of stock and the new business has cash available for any legitimate business expense, including paying the franchise fee for the new business.

What has changed in lending?

The good news in lending is that banks are willing to lend money again! At FranFund, we have established a portfolio of lenders across the country that understand the value that a franchise system brings to the success of a new business owner. We have a tool that enables us to pre-qualify a potential borrower for a loan to help give them the confidence they need to move forward. This is similar to getting pre-qualified for a mortgage.

A game-changer for lending

What does someone considering franchising need to know about obtaining a loan?

The SBA (Small Business Administration) created the idea of government guaranteed lending to incentivize banks to provide loans to small businesses and their programs have increased loan availability across the country. SBA loans are usually granted for terms of 7 to 10 years, at an attractive interest rate of about 6%. A potential borrower will be judged by a common scale in lending called the 5 C’s of Credit: Credit, Cash, Collateral, Capacity, and Character. Credit – showing that you have demonstrated responsible use of credit in the past; Cash – having 20-30% of the total investment available to contribute to the project; Collateral – pledging additional assets which the lender can take security in for the loan; Capacity – can the borrower meet the obligation of the debt; and Character – which is the borrowers overall reputation both personally and professionally. FranFund works with potential franchisees to complete the loan package for maximum effectiveness and then shop that loan to multiple lenders for the best offer.

Any closing remarks?

For most potential franchise owners the subject of financing can be intimidating. At FranFund, our goal is to create a customized funding solution for each client so they understand the options available and can pursue the right business opportunity with confidence.

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