It is not possible to buy a franchise with no money. However, there are many options to get capital from other directions than your savings. We will outline a few funding sources that aspiring business owners can use to buy a franchise.
Key Takeaways
- Retirement fund money can be withdrawn and used as capital to buy a franchise.
- Investors can use personal assets to buy a franchise or get a business loan.
- Some franchisors offer in-house loan options that can be very useful for investors who have a shortage of start-up capital.
- It is possible to buy a franchise with a business partner and thus split starting cost in two.
How To Buy a Franchise With No Money
Find some low-cost franchise opportunities.
Investors who don’t own the necessary funds to buy a franchise must search for low-cost franchising opportunities that will deliver secure and steady profit in the future. The fast-food industry is not an option if you have no start-up capital because starting a restaurant requires high investment funds.
Investors can find the best low-cost franchises in the maintenance, cleaning, and pressure washing industries. Some franchisors offer the opportunity to start a business in this niche for below a $50,000 investment.
The cleaning and maintenance industry is not as glamorous as a restaurant, but the profit margins are multiple times higher than those that make owners in the food industry.
So in terms of the margins starting a cleaning franchise will be much more profitable than starting fast food restaurant!
Also, the investors who want to buy a franchise with no money must be aware that a lot of work they will do by themself. At the beginning of the business, the best option is to be the only worker. So be ready to get your hand dirty.
For example, there is possible to start a pressure washing franchise with low investment. It is only necessary to have a van, pressure washer, and cleaning supplies, and you are ready to go.
Also, pressure washing franchises deliver a huge profit margin, so it is possible to make good money that franchise owners can reinvest in the scaling business to a higher level.
Use money from your retirement fund to buy a franchise.
Yes, there is possible to withdraw your retirement money to buy a franchise. However, you must be careful when withdrawing your retirement funds because this can be a very risky business move.
If you are younger than 59 ½, you will need to pay a 10% early withdrawal penalty and certain taxes. However, there is the possibility to use these funds in full to buy a franchise when you have no money.
There is a so-called ROBS (rollover as business start-up plan) funding option. Using this alternative, you can utilize retirement funds savings to buy a franchise without penalties and taxes.
The advantage of using ROBS is that this is not a loan, which means that you will not need to pay interest, and there will not be debt. However, there are some requirements to withdraw this capital from your retirement fund.
The disadvantage of the ROBS is that the investor must form a C corporation to get his retirement funds. These types of companies can be expensive to maintain, and this type of business structure is much different than LLC, for example.
It will all depend on the investors and how much they are willing to risk to start a franchised business. Using retirement funds to buy franchises must be the last option for aspiring franchise owners.
All investors must be wise when using retirement money to start a business because the franchise can fail if the wrong franchisor is chosen.
Use personal assets to buy a franchise.
Many people are not even aware of how much their assets are worth. If you have no money in the bank account, that doesn’t mean that you can’t buy a franchise.
Even if you have a mortgage loan on your house, that doesn’t mean that you cannot use it to start a franchise business.
If your house market value is $100,000 and you still have to pay $50,000 of the mortgage, in that case, you own $50,000 of capital that can be used to start a business.
Also, there are cars, electronic equipment, jewelry, shares of stock, and other investments; all these personal assets are worth some money.
So list all your assets on one paper, and see how much capital you have at your disposal to buy a franchise. Often people think that they own no money, but when they see how much their assets are worth, they are surprised.
Also, your personal assets can make it easier to get a loan for buying a franchise, so their list can be beneficial if investors opt for some of the traditional loaning options offered on the finance market.
Find out what loan options you have available.
Franchisors often have connections with third-party lenders. Some of them have relationships with SBA, which means it would be easier to get loans if the investor chooses to buy a franchise from these types of franchising companies.
You need a good FICO/Credit score if you use commercial bank loan options. Also, it is wise to get a Franchise Disclosure Document and present it to the bank manager together with a well-structured business plan.
As we mentioned above, when we are searching for options about how to buy a franchise with no money, personal assets will be crucial to get a loan from the bank.
So if you don’t have a good credit score, the assets are what will give you the possibility to stash capital that will be enuff to start some low-cost franchise opportunity.
Some of the franchisors also offer in-house financing, so this also can be one of the possibilities. In this type of finance structure franchisor finance most of the starting cost, and the franchisee payoff that cost by monthly payments.
Find Business Partner
The easiest option to buy a franchise with no money is to find a business partner who will bring the necessary capital. If you opt to involve other people in your business venture, you will probably need to give a partner to own some percentage of your franchised business.
The best option is for the business partner to choose a family member or a close friend. However, it is necessary to define partnership closely because your friendship is on the line if the franchised business makes a failure.
Some franchisors like McDonald’s don’t allow two-person/investors to own the same franchise unit. But, 95% of the other franchising companies don’t have requirements on how many investors can be involved in buying one franchise unit.
The most significant advantage of having a franchising partner is that starting costs can be split between these two parties. Also, work tasks will be easier to do if you have a reliable business partner who will work with you on the day-to-day scaling of your franchised business.
What is the cheapest franchise to start a business?
The cheapest franchises are those in the Cleaning & Maintainance and Fitness Industry. These industries offer possibilities to start franchises that entrepreneurs can buy for an investment that is under $30,000.
However, when choosing what franchise to buy, how much cost it must be the second question that we ask. We must first determine how much profit a franchising opportunity can make to the owner per year.
Although franchising is less risky than an independent business, that doesn’t mean that franchised businesses can’t fail. So, it is crucial to evaluate franchising opportunities according to their profitability.
When asking what franchise business to buy with no money, people often stumble upon the online franchising opportunities. In the online industry, we have a few franchises that investors can start for under $1,000. So this also can be one of the options for aspiring entrepreneurs who don’t have significant start-up capital.
However, if an investor search for some low-cost classic brick and mortar business opportunities, he can start his investigation in the cleaning, fitness, or even dance industry.
Summary
Although it is not achievable to buy a franchise with no money, that doesn’t mean that you don’t have the option to cover this type of investment. In the United States are more than 4,000 franchising companies, so every aspiring franchise owner will be able to find one that suits him best.