How to Find The Funding You Need To Invest in a Children or Education Services Franchise

By: Emma Pearson
Published: December 11th, 2018

If you’d like to help children to lead happy and healthy lives while providing support to their families and running your own business, you can do so by investing in a children or education services franchise. The demand for children services including daycare, haircuts, sporting goods, clothing, sports training, enrichment classes, and tutoring is high. According to the U.S. Census Bureau, there are more than 74 million children in the United States and this number is projected to increase to roughly 80.3 million by 2030.

The first step to becoming the owner of a children or education services franchise is to do extensive due diligence to ensure the franchise brand you select is likely to meet your goals. The second is to find the funding necessary to purchase it.

 

Funding Sources for Children and Education Focused Franchises

There are a variety of ways you can fund your children or education services franchise.

 

• SBA loans: Many franchisees finance their franchise through Small Business Administration (SBA) loans. The SBA itself doesn’t actually loan you the money. Instead, it offers partial guarantees for the loans to the banks that participate in its programs. Some franchisors say they are SBA Approved, which means they went through a formal process with the SBA in order to prove their system is viable. The end result is that when you apply for an SBA loan you will have to establish you are a good candidate for it, but that the franchisor will not be scrutinized as well. This can speed up the loan process.

 

• Traditional bank and credit union loans:  Even if you have a solid business plan and collateral, many bank and credit union loans are only made to franchisees if they have an established relationship with a banker or proven success running a similar business. When it comes to SBA and traditional bank loans, you are more likely to get a loan if you are investing in an established and successful children or education services franchise brand with a track record of loan repayment. If the franchise you want to invest in isn’t already SBA Approved, you can ask to see its data from the Coleman Report, which runs an annual report showing the SBA default rate for different franchises.

 

• Non-traditional channels: Online lenders, after you create an account with them, generate a loan request that is matched to “compatible lenders” from the lenders and banks in their system. From there, you are connected with the potential lenders. If you are looking at online loan sources, avoid those that are not certified by TRUSTe or have poor Better Business Bureau ratings.

 

• Family and friends: There are two common ways franchisees obtain financing from family and/or friends. The first is to have them become a partner, which means they share the financial and operational load of the business as well as profits. The second is that they provide the needed funds as a loan. If your family or friends give you a loan, be sure to have them sign a contract, determine whether the money is loan or investment, and consistently communicate with them about the status of the business. The risk is that if you default on the loan it could impact relationships that matter most to you.

 

• Self-funding: This entails leveraging your personal assets to fund your business.  You can take out a home equity loan, a second mortgage, or borrow money from your savings or investment portfolio. You can also do a Rollover for Business Startups (ROBS), which enables you to invest $50K-plus funds from your retirement account into your children or education services franchise without paying early withdrawal penalties or taxes. Risks associated with these various actions include the potential loss of your home or retirement investment.

 

• Franchisor financing: Check Item 10 of the FDD to see if the franchisor offers financing options. Some provide debt financing, while others carry the entire loan or a fraction of it through their own finance company.

 

• Credit cards: Some franchisees partially fund their business, at least initially, with credit cards. If you opt to do this try to do so using your credit card with the lowest interest rate. Higher interest rate cards will result in your paying far more than you should have for your business unless you are able to pay your credit card off within a relatively short time frame.

 

When considering which funding option to select, be sure to do your utmost to ensure it will not put you at risk financially. This entails taking the time to understand the pros and cons of each one. Based on your credit history, timeline, risk tolerance, and more, the best financing route for you might be one or a combination of several options. 

Many franchisees who chose to take the plunge and invest in a children or education services franchise are happy they did so. They enjoy a meaningful career that enables them to serve their community and contribute to children’s lifelong success.

“Our corporate slogan is 'community begins here' and it does!,” says Kiddie Academy franchisee Melissa Brockman. “There are events we can choose to do that are open to the community as well as the families that are enrolled in our center. I love that.” Kiddie Academy provides childcare, infant care, preschool, and pre-Kindergarten early education. 

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