Opening Your Own Kitchen Solvers Franchise Might Be Easier Than You Think
It’s no secret that lending has been difficult for the past several years as banks clamped down on lending in the wake of the financial crisis. Here’s the good news: Things are starting to loosen up.
Kitchen Solvers works closely with Tenet Financial Senior Consultant Dave Woggon to help franchisees obtain cash to start their business.
Woggon says that there are three main routes for funding a new Kitchen Solvers:
• Bypass the bank: If you have a retirement nest egg, you can tap into it tax-free in order to start a business.
You may want to hire professional help, but the basic process goes like this: You form a C corporation that creates its own 401(k) plan, then you roll your old 401(k) into the new company’s 401(k). As the sole participant in the new corporation’s 401(k), you then direct it to invest its funds in the company’s stock. Voila! Your investment has been converted into working capital that can be used to fund a Kitchen Solvers franchise. Profits can then be pumped back into the corporation’s 401(k) plan, refilling your retirement coffer.
The advantage of using a self-directed 401(k) is that it allows you to tap a pool of your own cash in order to start your new career. Some people are able to completely finance their franchise by using retirement funds. Others are able to self-finance much of the business, and obtain a bank loan to cover the rest.
“One big advantage of using your retirement funds is that it allows you to start your business with a lot less debt, which makes it more likely to succeed,” Woggon said. People are saying ‘Rather than investing my money in some other company, why don’t I invest it in my own company, where I am in control?’”
• Unsecured loans: In 2008, 2009 and 2010, finding a bank willing to issue an unsecured loan was about as common as finding a bank willing to issue unicorns.
That’s changing. For borrowers with excellent credit scores — 720 and above — unsecured loans are again an option.
Woggon said that many borrowers are able to use a combination of strategies — tapping their retirement to pay for part of the new business and obtaining an unsecured loan to cover the rest of the investment.
• SBA loans: Loans from the U.S. Small Business Administration are an option for people with credit scores of 650 or higher. These are secured loans that require collateral, and they also have stringent requirements, such as 30 percent equity required from the borrower. The borrower must also be able to show that they have the ability to repay the loan, which generally means that the SBA likes to see a working spouse who can repay the loan if needed. You’ll also need to provide a thorough business plan, and be able to show that you have two year’s work of relevant work experience that will help you succeed in your new business.
It can take longer to be approved for an SBA loan, compared to four to five weeks for a retirement rollover and as little as two days to get approval for an unsecured bank loan.
Woggon said that borrowers who can’t qualify for an unsecured loan generally go the SBA route, and some of them have been tapping their retirement funds in order to generate the equity the need to qualify for an SBA loan.
To learn more about your financing options, start a conversation with us – business ownership might be closer than you think.