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  • Writer's pictureTim Parmeter

The Top 3 Funding Options for Owning a Business

The #1 question we hear from people who want to become franchise owners but aren’t sure how to pull it off financially is this: Am I fundable? In this post, we are going to cover this question in plenty of detail. You’ll be excited to know that the answer is almost always a resounding yes.

Believe it or not, asking that question is the easy part. We will go over the three most common funding options, the requirements for each of them (including cash, credit score, and other factors), the timeline for each of them, and their pros and cons.

Are you looking to be a business owner but don’t know how to make it happen financially? If so, you’re in the right place. Let’s break down the available funding options.

#1: A Good, Old-Fashioned Loan

This is the easiest option for most people to wrap their heads around. You have heard of loans before – they’re a common funding option when it comes to owning a business. In the franchising world, these often come in the form of SBA (Small Business Administration) loans.

At FranCoach, funding is one of the many areas that we help our clients with. We work with our clients to understand not only whether they’re fundable and how much they’re fundable for but also what their best funding option is and which of our partners would be the best match to help them with funding.

Our Founder and CEO, Tim Parmeter, often explains funding like this: If you have enough cash to put a down payment on a house – not a mega-mansion, just a nice little starter house – with a little left over, then you have enough cash to work with in order to have funding options available to you for owning a franchise. One of those options is the SBA loan.

At that minimum level with enough money to put a down payment on a starter home, you’ll have options when it comes to franchise ownership. Now, it’s important to be realistic. A starter-home-level cash balance isn’t getting you 10 McDonald’s. But it will get your foot in the door with several hundred different franchisors that can work with that financial profile.

The SBA Loan

Within the SBA, there are different tiers. The more you want to borrow, the more restrictions and requirements you will have to meet. But at the most basic level, the SBA offers what is referred to as an “Express Loan” for up to $150,000. If you are qualified for a $150,000 SBA loan, we will have a few hundred different franchisors that could be a match.

Can we go higher and get a loan amount above that? Absolutely! SBA loans can go as high as several million dollars. But for the purposes of this post, we’re going to focus on the basic, entry-level stuff: the SBA Express Loan.

What does it take to get an SBA Express Loan?

This is a cash-intensive loan. That means that you’ll usually need about 20% to 30% of the loan’s value as a cash injection (think of it like the down payment piece of this). At times, it can be another 20% or more post-closing liquidity. That’s when the bank wants to see that you have the cash on hand to pay back the first several months of the loan.

What does the bank really care about? They don’t care if you’re opening up 14 franchise locations down the road – they just want to make sure you’ll be able to pay back the loan. That’s why they have certain cash requirements for you to get approved.

If you are looking to get a $150,000 SBA Express Loan, you will likely need around $50,000 between the cash injection and the post-closing liquidity. We have seen that number go as low as $20,000 and as high as $70,000, depending on various factors. Generally speaking, you will probably need about a third of the loan’s value in cash.

In terms of credit score in order to secure an SBA loan, the minimum is currently sitting around 700 with low debt usage – the ideal is probably under 30% or so. For the higher end of loans, home ownership will likely be required for collateral. For SBA Express Loans, home ownership isn’t required, but it is helpful.

In terms of interest rates, there is some variation. Usually, they fall in that 2% range over prime when all the requirements are met. Keep in mind that in order to get the loan, you’ll need to already be liquid for about one-third of it. Just like when you buy a house, you can’t take that “down payment” value out of the loan – you need to have it already.

When will the loan get funded?

The loan does not fund until the franchise agreement is signed, which normally involves paying the franchise fee in full. Every now and then, we can help people figure out how to negotiate a deposit on the franchise agreement in order to get it signed so that the loan can kick in and help pay for the franchise fee. It’s not a guarantee, but it’s often something we can work out.

If you are working with a franchise that requires physical space, like an office, you will be required to have a lease before the loan is funded. The bank will want to see that you have the cash needed to get your office space or retail space set up and the lease signed before the loan funds. With that being said, the timeline is not short.

For an SBA Express Loan, the timetable is generally about 60 to 90 days from the moment of final approval with all of the aforementioned steps taken care of. Then, you will finally have the cash in your hands.

Pros and Cons

If you are considering an SBA Loan, there are a number of pros and cons that you may want to keep in mind in order to make an informed decision. When you work with FranCoach, we can help you decide which funding option is right for you.


  • Lower interest rates


  • Cash-intensive loan

  • Not the fastest way to receive the money

If you want to learn even more about SBA Loans, check out this episode of our Franchising 101 podcast, which we dedicated especially to that topic.

#2: The Retirement Rollover

Let’s say that your credit is good but you don’t have much liquidity – or maybe you do but it would take almost every last dime of the cash you have on hand to get an SBA loan, and that makes you a little squeamish. So is there a funding option that takes no cash? The short answer is yes.

There are actually two funding options that take little to no cash. The first of those two is called ROBS, or Rollovers as Business Startups. It’s a little-known option that allows people to use funds from a qualified retirement account (like a 401k or an IRA) to start a business. Don’t believe us? That’s okay, many of our clients have the same reaction. But it’s true! You can put a piece of your retirement funds toward your new business.

Let’s do some simple math. We will say there is $200,000 in your retirement account. You could go right ahead and withdraw that money, but you are likely to get dinged around 10% right off the bat as a withdrawal penalty. There goes $20,000.

Then, the rest of the money you receive is considered taxable income. If you have a 27% tax rate, you can say goodbye to another $50,000. All of a sudden, your initial $200,000 is down to about $130,000. Now, many of us have been at a point in our lives when we’ve withdrawn from a retirement account and simply had to eat the penalty. But that’s by no means the smartest thing to do financially.

So is there a way to use your retirement savings without harsh withdrawal penalties and tax hits like those we outlined above? The answer is yes. You can do so through the ROBS program.

The ROBS Program

There is a fee to use the ROBS program, and that’s what you might consider the required liquidity piece of the equation. We will use round numbers and call that fee $5,000. So yes, you do need a small amount of cash, but paying that fee will allow you to roll over the whole $200,000 in your account without taxes and without withdrawal penalties.

Basically, all $200,000 of your retirement savings is now yours to fund your new business. With that, there’s usually a small monthly fee (often around $100) that the program will use to create a 401k for your business. Overall, there is very little cash needed for this option.

The timetable is also attractive. It usually takes about 30 days to get this done. At FranCoach, we have funding partners that we can help clients work with in order to get the ROBS program set up. For those of us with robust retirement accounts, ROBS can be a great option.

Is It Too Risky to Use Your Retirement Funds?

When we suggest the ROBS option to clients, some of the more squeamish individuals get nervous about using their retirement money for the purpose of starting a business. But think about it like this: Over the last 10 years, what has your return been on your 401k?

Has it been 6% or maybe 8%? Have you been totally crushing it over the past 10 years and bringing in 10%? If so, awesome. But imagine taking that $200,000 and running your business over the next 10 years. If you don’t think the return is going to be better than that, then perhaps you shouldn’t be starting a business. You should be blowing 10% out of the water over 10 years as a business owner.

Pros and Cons

If you are considering using your retirement funds through the ROBS program, there are a number of pros and cons that you may want to keep in mind. When you work with FranCoach, we can help you decide which funding option is right for you.


  • It’s your money, not a loan

  • Quick turnaround time of around 30 days

  • Very little cash to make it happen (about $5,000)


  • Comes from your retirement funds

If you want to learn even more about the ROBS program, check out this episode of our Franchising 101 podcast, in which we cover the topic in even more detail.

#3: Absolutely, Seriously No Cash Down

We have some funding options and partners that do non-SBA loans – in other words, unsecured loans and lines of credit. With these, you won’t need any cash. It sounds too good to be true, but it’s not.

Of course, the zero cash aspect is the driving piece of what makes these options attractive. The timeline is another enticing feature. While an SBA loan can take 60 to 90 days, these loans or lines of credit can take just 10 business days. So within two weeks, you’ll have your money in hand.

You will be able to use the money to pay the franchise fee and sign the franchise agreement, to get office space, or for anything else you can think of. You don’t need cash to do those things before being approved for the loan.

In terms of interest rates, they will probably be a little bit higher than those associated with SBA loans. The lines of credit often have little to no interest for the first six to 12 months. You will need a credit score of around 700 to get these loans.

The origination fee for these loans is normally higher than that of the SBA loans. It can be 10% to 15% of the loan’s value. However, it comes out of the loan amount rather than being required as a cash advance upfront. You don’t need to dip into the piggy bank.

There are people who don’t have the cash for an SBA loan or would prefer to hold onto their cash – and for those people, these unsecured loans can be a very attractive option. Plus, the line of credit stays open forever as a long-term funding option.

Pros and Cons

If you are considering an unsecured loan or line of credit, there are a number of pros and cons that you may want to keep in mind. When you work with FranCoach, we can help you decide which funding option is right for you.


  • No cash needed

  • Very quick turnaround time of around 10 days

  • Can be used for various purposes, including franchise fee


  • Higher interest rates

  • Higher origination fees

Which Funding Option Should You Choose?

Now that you know about the top three funding options, you may be thinking that franchise ownership is looking a little more attainable. You also might be wondering how to choose the right one. If so, let’s talk.

Here at FranCoach, we are a national search firm dedicated to working with individuals who are interested in owning a franchise. We have partnered with over 600 of the top franchisors in the country, spanning nearly 70 industries.

Our goal with clients is to help them find the absolute best franchise for them to own. Our goal with our Franchising 101 podcast series and this series of informational blog posts is to help educate people on all aspects of franchise ownership.

Reach out to us to learn more about potentially becoming a franchise owner. There’s never any fee for our service, so why not take the first step today toward your better tomorrow?

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