I Want to Buy a Franchise, But I Have No Money

I Want to Buy a Franchise, But I Have No Money

(Image: iStock.com/RapidEye)

Hopefully, you’re not reading this article with the expectation that I’m going to share a big secret about buying a business without any money.

Unfortunately, I don’t have any tips for that, and I’m not going to be able to tell you that you can. Yes, I get a lot of calls and inquiries from people that really want to buy a franchise; they have the passion and are ready to work hard, but they don’t have any capital. Bottom line–you need capital to purchase a business! Truth be told, you need capital to start a business as well, but there’s no exception to capital requirements in the franchise world.

If you consider the investment capital you pay for a franchise, you’re receiving anything from the ability to use a recognized name and trademark that has local, national, and sometimes international recognition, a website built and maintained for you, training/coaching, operational support, and, depending on the business, a full call center and payroll department. You’re not going to be able to get any of that without putting some of your own money on the line.

Here are two options you should consider when looking for opportunities to raise capital to purchase a franchise:

Leverage a 401(k)

Thirty years ago, a few top attorneys that were intimately familiar with tax law created a program based on the rules of tax law that enable entrepreneurs to leverage the funds in their 401(k) to purchase a business, and even pay themselves a salary during the startup period–penalty free. This is an excellent option for people that are used to having a regular salary. It’s difficult to leave a steady and predictable income to run a business that only pays based on sales or commissions. This may be just what a person needs to take the leap. I also favor this option because it is extremely flexible. It allows the purchaser to decide how much of the 401(k) they would like to leverage, including a minimal amount to put a security deposit down on a Small Business Administration (SBA) loan. Saving for retirement is both smart and necessary, but investing in oneself before retirement should not be easily dismissed. While I absolutely recommend this funding approach, it’s critical that you use a reputable company to be the administrator of this program, as it is complicated tax law and must be executed by an expert.

SBA Loans  

The SBA 7a program is a government loan program that loans millions of dollars each year through various lending agencies, for people that want to purchases a new business or expand an existing one. Individuals can qualify for $50,000 up to $5 million. You will need a FICO score of 680+, be able to put 20% to 30% down on the borrowed amount, have a written business plan, three years of tax returns, and possibly some collateral. Most franchises are already registered with the SBA and have a written business plan, so securing this loan for a franchise can be easier. SBA loans can be an excellent option since the SBA has zeroed out fees to borrowers on SBA-supported loans under $150,000, which helps traditionally underserved segments of the population like women and minorities.  The rates are also quite good! There are other SBA loans than the 7a program that should also be explored.

There are several other opportunities available such as secured and unsecured loans, based mainly on credit score and collateral (property, equipment, investments, etc.).  These types of loans help with leasing equipment for your business or funding your payroll. Microloans are gaining in popularity, as well as loans and grants being given at the city and state level for economically depressed areas.

So while you may not be able to buy a business without some capital investment, there are opportunities to gain access to capital using resources that you haven’t considered or haven’t tapped into. Partnering with a friend or family member can also lessen the burden. Turning something into nothing is quite a feat, but turning a small something into a dream is certainly possible if you have the right tools.


Nancy Williams earned a degree in sociology from UCLA with a specialization in urban studies and business. Her first business was a partnership in a small record label right out of college. After working with a few tech startups, she concluded her career in the corporate world with 14 years at Sprint, a majority of that tenure as a director in customer and sales operations. Nancy started NValuable Franchise Consulting, in order to provide free consultation, relevant insight, pertinent and candid feedback to her clients, so they are able to confidently purchase the right franchise. As a result, her clients achieve financial independence and a positive, enduring impact on their families and local communities.
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