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How to Buy a Franchise or Business with No Money
The Dream of Owning Your Own Business
Many of us have had the dream of owning our own business and breaking free of the 9 to 5 corporate work environment. Perhaps you have even picked up one of those magazines at your local bookstore that lists different franchises and business opportunities you can invest in. One of the most disheartening roadblocks potential entrepreneurs run into is that buying a business, especially an established one with a proven track record of success is very expensive.
So how exactly are you supposed to buy a franchise if you don't have a lot of money to begin with? At times, it can be extremely frustrating because many people who have never owned a business before will look at the six or seven figure price tag for opening a new franchise and decide that if they had that much money; they wouldn't even need to start a business at all.
Buying a Business or Franchise
If each of these opportunities required all of the money up front, there wouldn't be very many new businesses opening. A better way to look at business ownership is to compare it to purchasing a house. Instead of having to come up with hundreds of thousands of dollars to buy a house, you simply secure the purchase with a down payment and make payments over the course of many years until you own it free and clear or decide to sell.
Buying a business involves a similar process only unlike a house; your company will be bringing in revenue each month so you don't have to come up with the money out of pocket to service your debt. What you have to understand about the whole process is that rarely do any businesses at all start up purely using their own capital to finance the operation without taking out some kind of loan. Even those who may own several different businesses and have the ability to start a new one with cash will usually opt for at least some form of financing to preserve cash.
Finding the Money to Buy a Business
There are many different ways to come up with the money to buy a business or franchise. One way is to get a small business loan through your bank or a financing company that offers SBA loans. The SBA partners with a variety of lenders to guarantee loans and make them available to individuals who are interested in starting a new venture. There are even lenders that specialize in franchise funding specifically. One well known example is GE Capital Franchise Finance and there are others as well.
The issue that many people run into when trying to take a traditional approach to financing a new business is that most lenders require that you have very good credit and often require that the loan be secured with collateral such as equity in your home or your personal investments before they will consider giving you a loan. You have to be pretty confident in the success of your new venture to put things like that at risk.
Business Financing Options When You Have No Money
1. Find a Business Partner - One way to work around having insufficient capital is to partner with another individual or investor. This can be an attractive option if you know someone who might be interested in ownership and has the money but does not have the necessary experience to run it successfully. You can provide the experience and operational support to run a profitable company while someone else contributes the funds. You can then arrange an equitable profit sharing agreement with your business partner or investor based on what you think is a fair compromise.
2. Friends and Family - Don't forget about relatives and family members! Sometimes the financing for a new business or franchise can come from the people around you. Some of the largest and most successful businesses in the world started up as a small family business and grew from there.
3. Seller Financing - In some cases, the existing owner is willing to finance a portion of the transaction where you make monthly payments directly to the previous owner. This can also apply to the purchase of a franchise. In many cases, the company offering the franchise opportunity will offer special programs to provide assistance with funding the start up.
4. Private Small Business Lenders - If you have explored all of your options and still can't come up with the money you need to buy your business, you can consider turning to private financing companies or a peer to peer lending source. There are several websites online that offer the ability to search through a database of investors that could potentially offer money to start a business. You can then submit the details of your proposal and if they like what they see, they can contact you for additional information. There are many private equity lenders out there specializing in everything from brand new start up ideas to acquiring established businesses with solid growth potential. Just be sure that you have a polished business plan if you decide to attempt to finance your business this way. These companies are approached by thousands of hopeful entrepreneurs and must select only the best ideas to invest in.
Investigate Grant Opportunities
Be sure to take the time to look into any government or local grants you might qualify for. There aren't a whole lot of federal grants available to individuals but there may be some good opportunities at the state level. You probably won't come up with enough money to cover the entire cost of starting your company this way but every potential source of capital is worth researching. Grant funding can be available for starting a new business in a specific area or for using certain technologies such as solar power. While you may not uncover a gold mine here, it can still be worth researching and you may be able to find something you are eligible for.
Reaching Your Goal
While owning your own business or franchise can be a lot of work, it can also be very rewarding! Be persistent and don't give up. If you continue to push towards your goal of being able to buy a business, eventually you are likely to find success. Don't be afraid to change paths along the way. If you find yourself having trouble selling your business idea across a broad range of funding sources, consider the possibility that it might not be such an attractive opportunity. Investors love to see a positive return on their investments and if you have a great idea or have found an excellent opportunity, someone will see the value in it and be willing to give you a chance.