A new study shows a remarkable increase in the number of minority-owned franchises in the United States. If you are an entrepreneur considering opening a franchise business, the data shows the opportunity for business ownership.
For many potential business owners, the question is one of funding, as seen in the recent report, Exploring Challenges and Opportunities for Minority Business Owners in 2019. Franchising is an intriguing opportunity and there are funding options available. When looking at financing a minority-owned business, five avenues to explore are readily available.
Minority-Owned Franchise Growth
The International Franchise Association (IFA) provides training, support, and resources to under-represented populations interested in franchise ownership. In 2018, the IFA Foundation released a study, Franchised Business Ownership by Minority and Gender Groups, conducted by PricewaterhouseCoopers based on 2012 U.S. Census data.
The report highlights key growth indicators, including:
- The percentage of minority-owned franchises has grown to 30.8 percent in 2012, compared to 20.5 percent in 2007.
- Minority franchise ownership has increased 50 percent since 2007.
- The percentage of Hispanic-owned franchises doubled to 10.4 percent from 5.2 percent.
- Minority-owned franchises are earning significant annual revenue. The rates of franchise owners with more than $1 million in annual ownership are 13.7 percent (Asian), 11.9 percent (Black), 8.7 percent (Pacific Islander), 7.3 percent (Hispanic/Latino) and 6 percent (American Indian).
With those encouraging statistics, it is no wonder more minority entrepreneurs are looking at franchise ownership.
Financing the Dream
What are your financing options? Here are a few opportunities.
- Franchisor Funding. Many franchises offer financing solutions, either through lender partners or direct capital from the corporation. Many allow for financing not only of franchise fees but also equipment purchases and other start-up costs.
- Commercial Bank Loans. A traditional term loan is often a challenging option for minorities, who sometimes lack the credit history or collateral to secure a loan. Banks will want to see your business plan and review your credit history to determine creditworthiness, terms, and interest rates.
- SBA Loans. The U.S. Small Business Association offers loan options through intermediary partners. These loans are often attractive to lenders because the SBA guarantees a percentage of the loan amount. As a consequence, lenders in SBA programs are more apt to offer better interest rates and longer repayment terms.
- Friends and Family. Many franchise owners turn to those closest to them to ask for gifts or loans. Some bring on friends and family as business partners. While these situations often come at a good price for the entrepreneur, the risks of family disputes and lost relationships loom large.
- Rollover as Business Start-up. The ROBs strategy lets entrepreneurs leverage existing 401(k) funds to finance a new business or franchise launch. With ROBs, the entrepreneur rolls over existing funds into the new company’s investment plan, issues shares, and has the plan to purchase those shares. The proceeds provide fast, flexible cash to use for franchise fees, leasing, and equipment costs or hiring.
Benetrends pioneered the use of ROBs 401(k) business funding more than three decades ago. It has helped thousands of business owners find solutions that let dreams be realized. Download The Definitive Guide To 401(k)/ROBS Business Funding to learn more about how Benetrends can help ease the challenge of finding financing.