You have researched the franchise that you are interested in. You have visited with current franchisees, and spent the day at the franchisors headquarters. Now, it's time to get a loan. One little problem; The banks are still a little paranoid about loaning money for business start-ups…..
Now, I'm not saying that you can't get a traditional loan for your franchise business start-up from your local lender. It just may be challenging. The local bankers that I talk with on a monthly basis are telling me that they are looking at these two things, when considering whether or not to loan money to a start-up business;
- Excellent credit history. {They mean excellent.}
- Collateral {Look at the definition, here}
Basically, you'll probably need a credit score of 750+ and you'll be putting your property on the line.
Before the all too recent banking debacle, you needed good credit, and in most cases some collateral was required. Now, there doesn't seem to be any room for negotiation on those two points.
So, what to do?
One choice that is becoming increasingly popular is to use some of your retirement funds to finance a portion of your franchise business start-up.
Leonard Fischer, is an attorney, and is also the founder of BeneTrends, a company that specializes in employee benefit plans and the Employee Retirement Income Security Act (ERISA) of 1974. He has something called the Rainmaker Plan. To qualify, you must have at least one of these; {From the Benetrends website}
- IRA
- 401 {K}
- 403 {B}
- 457 {For Government agencies}
- SEP
- Simple Plan
- Annuity Plan
- Defined Benefit Plan
- Profit Sharing Plan
- Cash Balance Plan
- Money Purchase Plan
- Rollover Plan
- Employee Stock Ownership Plan
Next, they'll help you establish a C-corporation for your new business. Then, the C-corporation establishes a new retirement plan and your current retirement funds are rolled over into the C-corporation’s new plan. Finally, the new retirement plan invests in stock of the C-corporation.
Does this sound complicated? The folks at Benetrends will be happy to explain the process in more detail.
Thousands of BeneTrends Rainmaker Plans have been set up for people, and every plan has received a favorable Letter of Determination from the IRS. The team at BeneTrends will make sure your new retirement plan is also given the OK by the IRS.
Should you check this option out? That's totally up to you. I'm just pointing it out.
A couple of folks that I've consulted with have used a portion of their retirement money to finance their franchises. They told me that the process was not that complicated, and it enabled them to take a shot at the American Dream.
As the banking crisis eases up, I suspect that the banks will loosen up their credit standards. But, it's probably going to take a while.
*{Disclosure. Michael Webster, a Canadian franchise attorney that I have shared back and forth with for a couple of years, asked me if the link that points to BeneTrends in the article above, was an "affiliate link." It is. If you happen to go to the Benetrends website from a link of mine in this article, and request info, and end up using their services, I get paid a commission. Now you know. If a plan like the one described above makes sense for you-in your own situation, then you may decide to do it. If not, I don't recommend that you do it. My lifestyle won't be changed. Either way. I just put the info out there. You decide. We all have choices.}
Go here for more information on the RainMaker Plan.
