Franchise financing

The franchise assets may be used as collateral with a local or national lender. However, some amount of the value of the franchise (20% or more) must come from your own resources.

Working capital and seed capital may be raised from family, friends, angel investors or other non-bank resources who are restricted from un-collateralized loans.

Some entrepreneurs have used home equity loans or other loans based on personal collateral. One newer method is for prospective franchise owners to borrow from of their 401k, or IRA as a way to finance their new businesses. Talk with your financial advisor before taking this step; significant tax implications must be addressed in advance.

It's wise to carefully balance the cost and risk associated with any form of financing a business start-up to make sure the decisions are well made.