Due to the current lending environment, there are many challenges in securing financing when attempting to open your own business. Banks are more hesitant to lend and the entire loan process can be a long and frustrating experience. Despite the tough financial environment, Right at Home has continued to build momentum year after year, while seeing incredible growth with existing and new franchisees. So how is this possible?
Many people have been using their 401(k) to finance their business – in fact, over the last four years at Right at Home, we’ve seen many of our own franchisees look to this as a financing option. According to FranFund, a company who helps franchisees find financing opportunities, since October 2008 the percentage of their clients that used the ROBS (Rollover for Business Start-Up) program to fund a business has increased from approximately 65% to 93%. And these ROBS transactions, typically ranging from $10,000 to more than $500,000, funded more than 4,000 businesses in 2009.
We have seen this trend emerge in recent years for a number of reasons. First, this takes out the approval process with the bank all together, since the money in your 401(k) is already yours. Yes, there will be paperwork, but the entire process can be done in as little as 2-3 weeks, compared to the 6-8 weeks it may take just to find out if you are even approved for the bank loan.
Another reason this financing option is becoming popular is because it’s an investment in you. When you consider how the money in your 401(k) works, the value of your 401(k) is determined by the performance of the stock market. As a shareholder, you don’t have direct influence over the performance of the companies you are investing in, so you choose what portfolios your money goes into based on the attitudes and perceptions of other advisors and research you do.
By opening a franchise with your 401(k), you are investing in something you can influence, as you have the ability to directly impact your company. A lot of people say that their 401(k) was going to own stock in something; they just decided that it might as well own stock in something that they could actually control and whose performance they could directly influence.
Over the last few years we have seen more and more people turning to this as a viable financing option. Of course it is always important to consult with your financial advisor to determine if this is the right financing method for you. However, we continue to see more people looking at this as both a way to access their dreams of business ownership as well as a way to take control of their future and invest in themselves.