Good morning, Nat good morning, Pete.
Pete: Whoo. I'm pumped up. Nice.
Nat: I'm glad that you got the energy up today.
Pete: Yes, absolutely. So going to make the great, great escape. I'm going to go to Florida for a little bit to warm up. Right? So I'm pretty excited about that. That will be awesome. You might have some house guests,
I would imagine.
You know, but it takes money to go to Florida, right? And I keep telling my wife, I said, you know, it's nice to escape the cold, but it takes money. Yes. So, what I thought we'd talk about today is it also is, is we look at and we've spent the last couple weeks talking about the importance of small business in the U.
S. economy and how franchises play a big part in that. And franchises are always looking for good partners. So what I thought we would do today is talk a little bit about, because this is a great question people always ask me is, okay, if I want to invest in a franchise, how do I fund that business? [00:01:00] So maybe we'll talk about the different ways in which you could fund a franchise business.
Banks of cash? Banks of cash. Well, all right. Well, let's, let's start with that one. So what would be kind of one way that you could fund your business? I guess personal like literally bags of cash, like personal savings, right? Yeah.
Yeah. You're jumping the outline on me again. I got it. Right. So, right. So you could take some of that cash that you have in savings or checking their money market or, or anything.
That's very liquid from some point to, to fund the business. What would be a second way? Bank
Nat: loans. That's how I actually started my first franchise. I, I went to the local bank and I told them my story and I got my 15, 000 for my startup. So I'm dating myself a little bit there.
Pete: Yeah.
Yeah. Really dating yourself, right? 15, 000 doesn't get you anything today. For sure. And, you know, we don't see as much of that. Right. That [00:02:00] kind of traditional loan in today's world. A lot of times the criteria is a little bit harder. You, you have to have industry experience or it's got to be an existing business, but certainly, especially if you're in a smaller community and you're not dealing with the mega banks.
Yeah. You could certainly do a small business loan. All right. What else, what would be a third one?
Nat: SBA loans, it seems like a lot of people are excited about that. So SBA would definitely be an option. That's the Small business administration and government backed loans.
Pete: Yeah, so the SBA is not loaning you the money The SBA is basically guaranteeing the financial institution that is loaning the money to you as the business, right?
Yeah in SBA loans, there's still money available there It's it's a good resource, but we do know that it's a variable, right? So it's Prime plus a couple points. You've got origination fees, closing fees, and it takes some time. It's a great mechanism to use to fund your business, but it just takes some work to get there.
And there are companies that specialize in [00:03:00] SBA loans. So you always want to kind of leverage those because they kind of know who's buying the paper and understand the franchises a little bit better. Totally. Yeah, absolutely. What would be another way in which you could fund your franchise business?
Nat: Occasionally I've seen some franchisor financing, so they might offer some French some financing, you know, whether to help with the upfront franchise fees or working capital or what
Pete: have you.
Yeah, so it's in house financing or they may have set up third party financing, you know, and we don't see as much of that in house financing today because bottom line is there's so much liquidity, so much capital out there that franchisers don't need to do it, but every once in a while, franchisers will do that and it can be a good source to fund your business.
What would be another example? Home
Nat: equity, I think, would be, you know, a lot of that's, that's pretty straightforward process, right? So it's kind of a layup for most people if they [00:04:00] have any equity in their house or line of credits.
Pete: Yeah, so you have a lot of times you have frozen capital in your home that you can't really use.
And so with the home equity line, you can take out a line, relatively simple process, right? And rates are prime plus a couple points or whatever you negotiate. It could be. reasonably money for sure. And from the standpoint, it allows you to kind of fund a business with frozen capital that you couldn't normally use.
And so you see a lot of people using equity in their home because that's where they have a lot of their wealth is in their home. Yeah. And what a great
Nat: way to You know, kind of turn your house into an ATM machine, right? If you could borrow against your house and get a business up and running and get some, you know, income coming in, that's a win win situation.
Yeah, leverage
Pete: your capital to create an asset as well as something that creates an income. We would never want to use a home equity line to pay for a vacation or anything else like that, right? [00:05:00] So when you say ATM, right? But, but it is a good mechanism to help people fund their business for sure. What would be another way or that you could fund a business?
A lot
Nat: of guys will tap into their 401k. There's the 401k rollovers, also known as the ROPS program. So a lot of people have had success doing that too.
Pete: So the ROPS is a way in which you can use your retirement dollars in a tax compliant way. And there's companies that you can trust to do this, that basically your retirement account, instead of investing in stocks and bonds, actually invest in your business.
So your business, your, excuse me, your retirement account will own your business. Isn't that crazy? Yeah, it's kind of genius, right? And again, we talked about that frozen capital You know We have all that retirement dollars that we can't access until we get to a certain age So if we can take some of that money and use that to fund our business That's that's a great resource.
Nat: The other thing I think People, you know, you kind of hear about that family and friends or [00:06:00] like angel investors Like that's also like another good way for people to be able to access some capital Yeah, there's,
Pete: you know, sometimes people have a fair amount of capital and they're looking to put it in play and they, they will loan it to small business owners.
And I think a lot of parents want to set up their kids, right? And they want their kid to have an opportunity to start a business. And so they may give them a little inheritance early or give them some of the funds or loan them some of the funds to launch a business.
Nat: Well, and also I think they have, those kinds of investors have better, more comfort with You know, investing in a business that's a franchise because at least they know there's some structure in place, right?
Let's be honest,
Pete: you know, and we've kind of talked about some traditional ones. And there are also some ones that we don't see much, but they're available. Right? So what would be some ones that aren't commonly used, but. But they're available. I
Nat: guess there's definitely venture capital. I mean, I know even like here in Chicago like [00:07:00] with f45 I think there there was some venture capital that came in and opened up like 100 locations So, you know you could conceivably put together some some of those kind of deals too
Pete: And and I think of another one like our friend he he does for lack of better terms gets a group of people together Almost like crowdfunding to invest in a franchise.
For lack of better terms.
Nat: Yeah, get like a big, like an area developer, regional developer or something like that.
Pete: Right. So we'll call that for the simple terms crowdfunding. I don't know if that's the right term, but that's probably
Nat: kind of like, yeah, because you're getting spreading the quote unquote risk across more people.
So I think, yeah, that that crowdfunding probably be a good term for
Pete: that. Yeah. And when we talk about businesses, sometimes they have inventory and equipment and stuff like that. And so there's a way in which you can also fund that as your. Looking to invest in business.
Nat: Yeah, a lot of especially, you know, you think [00:08:00] about like a tree trimming business as an example, you might be buying 100, 000, maybe even 200, 000 pieces of equipment and things like that.
But the franchise very likely has negotiated favorable terms for that kind of equipment.
Pete: Yeah, so there's there's equipment loans or leases that tend to be pretty favorable, right from a standpoint. So it's a little different type of loan. And you also can depreciate that equipment. So there's kind of advantages associated with that.
Think
Nat: about like printing, printing franchises, right? You have a lot of equipment with that. Yeah. And you know, you, you can dramatically reduce your startup investment if you just kind of are able to lease that equipment from day one and just have a low monthly fee for
Pete: that. Yeah, for sure. So, you know, businesses, as we take a look at it, we're very fortunate in today's world to have so many different ways in which you can fund a business or a combination.
Like, you know, it doesn't have to be where it's one or the other. Like I could take some of [00:09:00] my retirement dollars through the ROPS and use that as my down payment for my SBA loan.
All right. Well, we understand business. Yeah.
Nat: Lots of options out there. Yeah,
Pete: right. So you just have to go out and get it. So take some work. But that's what it's all about. All right, Nat. I think we, we we're good for the day. Time to
Nat: get your sunshine in.
Pete: It's a little sunshine. Yes. Yes. I got to put a little lotion on top of my head.
It might get burned.