Franchise Financing and Business Funding

Every business needs capital in order to grow.  Franchise financing and business funding can be incredibly complex.  New Day Consulting Systems. LLC is committed to helping businesses and franchises navigate the complex decision making process about choosing the appropriate funding vehicle to advance and grow your business.  As a general matter, small business capital can be placed in four (4) broad categories.  The following is a general overview of sources of business and franchise capital.

Gifts

Many small businesses and franchises begin with a gift from a family member or friend.  This is perhaps the best way to begin a new business as long as the parties involved are clear on the risks involved and the expectation of the parties involved are unambiguous. Another, often overlooked source of new business capital are grants.   Grants are not just available for non-profit organizations.  Grants may be available for businesses is the businesses are in industries that are critical to the national interest or the overall economy. Cybersecurity is an area that historically has had opportunities for grant funding. Additionally, the Small Business Administration (SBA) has a list of federal grants available for small businesses on its website.  Many states also have workforce development initiatives that may provide grant funding opportunities for your business.

 

Revenue and Self-Funding

Historically, this has been one of the most popular ways to fund a business.  Entrepreneurs use savings, 401K rollovers and revenue from the present business or perhaps other businesses and investments to fund a new enterprise.  This approach to funding a business has been called Bootstrapping.  Although it is difficult to accomplish, it has its advantages in that you do not lose ownership and control of the business and you do not go into debt.  Drawbacks include limitations on the scope of business growth because its tied directly to revenue or self-funding.  Since family members will be also affected by this approach, be sure to discuss the impact of revenue based and self-funding with family members prior to engaging in this approach to fund or expand your business.

 

Equity

Equity fundraising in essence gives ownership interest in a business in exchange for capital.  Generally, there are three (3) tyeps of equity funding for business operations: 1) Public Equity, 2) External Private Equity, 3) Internal Equity.  Public equity or securities include IPOs and crowdfunding.  Public equity funding is highly regulated.  External private equity is capital from angels and venture captialists and institutional private equity.   Internal equity is the owners equity that may be attached to debt instructions.  Equity funding is a high risk enterprise and should not be engaged in without compentent counsel and/or advisory group.

Debt

If the funding needs are not great, such as under $300,000, debt may be a much better alternative to equity funding. This type of funding includes commercial and industrial loans, leasing, real estate and unsecured debt. Commercial and industrial loans are loans secured without real estate. Most businesses secure loans with inventory or receivables. This includes leases, factoring, and receivables discounting. Many franchisees have secured business financing through SBA backed loans through a commercial bank. Some franchisees have taken out home equity loans to cover business costs.  And yet others have obtained financing loans through the franchise system they are working with as a franchisee.  An alternative, up and coming approach to debt financing is peer to peer lending.  If commercial banks are not willing to lend to you, you may find that alternative financing via peer to peer lending can meet your franchise or small business funding needs.

All of these approaches have benefits and risks.  Its important to discuss your options with your accountant and lawyer before moving forward with any of these options.  New Day Consulting Systems, LLC has a network of resources that includes commercial banks, SBA lenders, 401K rollover specialists, equity crowdfunding lawyers and peer to peer crowdfunding lenders that may benefit you today.  Call now to discuss your options.  

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