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Financing Options for Retirees in Franchising

1. Retirement Funds and/or Savings

Prospective franchisees typically must borrow money to start up their new venture. Retirees with substantial IRAs or 401(k) savings can use these funds to finance a franchise. There are several advantages to using retirement savings instead of traditional borrowing:

  • Faster start up because using an IRA is typically faster than loan application processing.
  • Eliminating or minimizing debt reduces the overhead generated by interest on loans.
  • With lower overhead, your business stands a better chance at success, will break even faster, and generate profits sooner. 
  • As your business succeeds, your IRA grows tax-free


The Employee Retirement Income Security Act (ERISA) permits retirement savings – including traditional and Roth IRAs, SEP IRAs, Keogh, 401(k) and 403(b) accounts – to be invested in for a wide array of options, such as real estate, a business or franchise. You can only use a 401k account after you leave the company where it originated. If you are going to use an IRA or 401(k) to fund a franchise start-up, you must consult with an accountant and a lawyer to ensure that your financial transaction is in complete compliance with ERISA provisions.


Once you have lined up a competent accountant and lawyer, you can start the legal process to direct you in investing your IRA toward a franchise with minimal taxes or fees.  Normally, you will first have to form a “C” corporation.  Once your “C” corporation is started, it is eligible to begin its own 401k program.  After the 401k program is established, you can roll over existing retirement funds into your new corporation’s 401(k) program.  Next, the new corporation’s 401(k) plan buys stock in the corporation as an investment, and this provides funding for the franchise.


It is absolutely essential that you get sound advice so your franchise investment passes IRS regulations.


2. Small Business Administration (SBA)

The Small Business Administration is the first place to turn for information. The SBA provides extensive information on business ownership, as well as training and educational programs, and financial assistance. For more information about SBA business development programs and services, visit the SBA web site at


In addition, the SBA sponsors a dedicated resource for retired folks who want to start a business.  AEIOU: Achieving Excellence In Our Uniqueness is an organization of active retirees, and offers news and information on retirement businesses, with tips on making the retirement years more enjoyable and productive. Their web site provides free guides with how-to information on many topics, such as writing a business plan, buying a franchise, and financing small business start-ups. Visit the web site at:


SCORE is a nonprofit association is dedicated to educating entrepreneurs, and assisting with the formation, growth and success of small business nationwide. SCORE has over 11,000 volunteer business executives, many of whom have retired from well-known companies, who counsel and mentor prospective and existing business owners. SCORE also offers low-cost workshops and seminars through its over 340 local chapters throughout the United States and its territories. There is lots of helpful information and training about starting a business at their web site: SCORE is sponsored by the SBA as well.


3. Family and Friends

Approaching family and close friends is another way to acquire funding for your franchise investment.  Perhaps a partnership could be formed in return for financial investment and this could work to your advantage in relation to interest rates and so on.  However, sometimes when you mix your personal life with your work life it can cause tension and tricky situations.  But if you find common ground and compromise, you should be able to confront and minimize any problem areas that may arise. The best method in avoiding disagreements is to write up a written agreement that explicitly states financial arrangements and loan repayments.


4. Franchisor

In some cases the franchisor of the franchise you are interested in investing in will help you with funding the investment. You should enquire with the franchisor first and see if this arrangement can be made to secure your financial investment. In cases, the franchisor may have a financial company it works closely with, or possibly has an in-house financial arm to help you launch your franchise.


5. Home Equity

Finally, your last option to secure financial funding for your business venture could come from remortgaging your home or personal equity in return for the funding finance. You should carefully check interest rates and repayment issues before deciding to apply for home equity as loan repayments on this type of finance can be quite high.


For more information on financial options you can take, consult a financial advisor.



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