There are many exciting benefits to buying a franchise – for one, entrepreneurs consider franchising to be less risky than a traditional startup because the franchisor has already gone through all the growing pains, and figured out what works and what doesn’t work.

Due to the unpredictability of startups, franchisees love the peace of mind they get when they buy into a well-oiled machine, not to mention an incredible support system that is 100% focused on helping each franchisee succeed in their own right. In other words, franchisees are independent business owners, but they’re never alone in their businesses. Doesn’t that have a nice ring to it?

If you’ve done your homework and arrived at the conclusion that franchising is right for you, the next question is, “Where do I find the funds?” There is no one-size-fits-all answer because it truly depends on your personal circumstances, but the good news is there are many funding sources available for entrepreneurs interested in buying a franchise.

Let’s take a look at some of the most popular funding methods available:

• Personal Savings: This is a popular way for people to fund a business, especially if they don’t have the credit score to qualify for a conventional loan, the collateral to qualify for an SBA loan or retirement funds they can access. 

• SBA Loan: Because the SBA guarantees small business loans, they are less risky for lenders. As long as you have a solid business plan and collateral, such as a home, you don’t necessarily have to have perfect credit to qualify for an SBA loan. These loans are designed for business owners who are in need of assistance; however, they typically involve a large down payment – around 30 percent of the loan. Also, borrowers need collateral to qualify. 

• Loan From a Retirement Account: If an entrepreneur has a retirement account, such as a 401(k), they may be able to take a loan from their retirement funds. With this type of loan, the borrower must repay it within a specific period of time. The strict terms and conditions surrounding this type of loan make it less than ideal, but it may be the best solution for some entrepreneurs. 

• Withdrawal From Retirement Funds: When an entrepreneur makes a direct withdrawal from their retirement funds, they are not borrowing the money, so it is not a loan. However, the associated taxes and fees are high, so a lot of people see this option as a last resort. 

• A Conventional Loan: Conventional loans are different than SBA loans; they do not usually require that a borrower put their personal assets on the line. They typically have higher interest rates and shorter payback windows. Often, this is an option when a borrower over qualifies for an SBA loan because they have too many assets. Unlike SBA loans, conventional loans are not guaranteed by the federal government, and approval is based on the borrower’s credit score and financial history. In summary: conventional loans are harder to qualify for and offer less attractive terms than SBA loans. 

• Rollovers for Business Startups (ROBS): With ROBS, also known as a self-directed 401(k), the entrepreneur rolls over the retirement funds in their 401(k) or IRA into a new retirement plan that allows the individual to invest in their new business – or in this case, in a franchise. This is an attractive option to a lot of people because they are not taking a loan from their retirement account. And, since they are not directly withdrawing the money from their retirement account, they don’t face the hefty taxes and penalties.

We  Work With Different Agencies

At Tutor Doctor, we have partnerships with different financing institutions in the US and the UK, such as Guidant Financial and Benetrends in the US, and NatWest in the UK. They have helped many of our franchisees fund their Tutor Doctor franchises, and we are proud to call them trusted partners!

If you’re interested in a franchise that involves a low investment, low overhead, and the lifestyle you’re looking for, we invite you to explore the Tutor Doctor education franchise opportunity!