The lending process has become more rigorous and time-consuming, as well as the increased regulations for funding.
So what can you do? Explore funding “early,” investigate all options, understand all costs and timing. Failure to do so could cause delays; thus, you risk missing out on the opportunity you’re pursuing.
Funding is one of the most important components in buying a business. Benetrends has been funding America’s entrepreneurs for over 35 years, offering a comprehensive suite of funding options covering nearly every type of business situation.
The most popular programs are the Rainmaker Plan® (IRA/Rollover) and SBA small business loan programs. Benetrends also offers Securities Backed Line of Credit and Equipment Leasing.
Small Business Loans (SBA)
The new stimulus package resumes the government payment of monthly principal and interest on small business loans guaranteed by the SBA under the 7(a), 504, and Microloan programs. New SBA loans made or approved between February 1 and September 30, 2021, will receive THREE months of government payment of principal and interest, capped at $9,000 per month. In addition to the above payment incentive, there is an SBA loan fee waiver for the second time in 10 years.
For loans of $500k and under, a borrower would normally have had to pay an SBA loan fee of 2% to 3%, depending on the loan amount. Depending on the amount borrowed, this fee can significantly increase the cost of the loan. Taking these costs into consideration, this waiver represents a significant discount for small businesses. Loans need to be fully funded by September 30, 2021, to get the waiver.
Home Equity Loans
Although less common in recent years, with the increase in value and low-interest rates (many seeing rates below 4%)…some entrepreneurs still rely on their biggest asset for cash – the equity in their homes – to finance a franchise or business purchase.
Home equity loans remain relatively easy to obtain, assuming you have the required equity in your home, as well as good credit and income for repayment – but the requirements have tightened up recently.
Portfolio Loans
Been around forever…often forgotten. This is just like a HELOC, but instead of using the home as collateral, you use your investment portfolio as collateral. Whether you want to launch a new business, expand the one you already have, or is a bridge loan, this type of funding can provide you with the immediate funds. It allows you to collateralize your investment portfolio without disrupting your long-term investments or asset allocations or creating unexpected tax consequences.
This type of funding is a popular option because rather than selling stocks to buy a business, you can simply borrow against them and generally pay only 2-4% interest. Compare this to historical appreciation on investments, typically around 9% on investments (as seen by the S&P 500 since World War II). You can see why it can be a valid option of funding.
The Rollover (Benetrends Rainmaker Plan)
It’s a common misconception that you can only use your retirement funds to purchase investments like publicly traded stocks, bonds, or mutual funds. In reality, you can use most retirement plans to buy a business—tax-deferred and penalty-free. In fact, tens of thousands of entrepreneurs have used their retirement savings as a viable resource for funding a business.
Called Rollovers as Business Startups (ROBS), this method of funding allows you to use your 401(k), IRA, 403(b), or another qualified retirement account to fund a business – with no penalties, upfront taxes, or debt. It can also be used as the necessary capital injection for a Small Business Association (SBA) loan.
Download their Innovative Funding Strategies for Entrepreneurs. This guide is an excellent introduction to what you need to know about funding a franchise.
