Lexi Ingraffia | Top 3 Franchise Financing Methods

In today’s episode, we sit down with Lexi Ingraffia, who has been in the franchise industry for the past 8 years and has experienced the growth of an emerging franchise brand, and funding of many different startup concepts.

Lexi’s ground floor experience with sales, operations, and finance has given her the knowledge to educate and guide clients on the multiple funding paths available to them. Lexi has some fantastic nuggets of wisdom which she shares throughout the episode– I recommend you listen to the end! 

We’ll chat with Lexi about the types of businesses she works with, as well as…

  • The 3 most popular funding options available right now
  • The importance of knowing your numbers upfront
  • Why a support network matters
  • How a franchise can make your money work for you
  • And more

Listen now…

Mentioned in this episode:


Giuseppe Grammatico: Welcome to the Franchise Freedom Podcast. I’m your host Giuseppe Grammatico, your franchise guide and today we have a very special guest. Today I am speaking with Lexi Ingraffia. Lexi has been in the franchise industry for the last eight years, experiencing the growth of an emerging franchise brand and funding of many different startup concepts. Her ground-floor experience with sales, operations and finance has given her the knowledge to educate guiding clients on the multiple funding paths available to them. Lexi, wanted to welcome you to the Franchise Freedom Podcast.

Lexi Ingraffia: Thanks, Giuseppe. I appreciate it. This is my first podcast. I’m very excited.

Giuseppe: First of many. I’m excited as well. And I appreciate you being on. You know, on the last few episodes we’ve been talking about funding and financing a franchise and all that kind of stuff, but I wanted to get a professional on the line to really explain to everyone exactly how it works and their options. But before we get into that, I wanted just to, you know, ask you to fill us in on your background. You know, how did you get into this and what did that journey look like?

How Lexi Got Into Franchising

Lexi: Yeah, so, like many, franchising just kind of fell into my lap. I don’t think anybody goes to school thinking, I think I’m going to get into the franchise industry. I actually was looking to get into buying. I was working my way up the corporate ladder for Dillards retail to work in their buying offices in good old, what was it, Little Rock, Arkansas. So, but I actually knew the marketing director of the franchise out of Louisiana where I’m from, hence the accent, and she worked for Painting With a Twist was the franchise actually. And so she asked me what I was doing. I told her. Wasn’t too excited about the place that I was in, where I was going. You know, in retail and, you know, holidays there are a curse word. So it’s just over it was over the demanding hours and wanted something a little different. So I interviewed with Rene Maloney and Kathy Dino, the founders of Painting With a Twist, and I was their new social media coordinator. And if anybody knows me, they know that I never post on social media, hardly ever. And so I was like, This is gonna be interesting. So after about six months of doing that, I was like, this isn’t really going to cut it. So I went to the founders, and I said, Look, I understand you guys are still growing, things are small. I do love what you’re doing. I love the give-back aspects of everything here. But social media coordinating not for me, I’m not your girl. So they said, Well, what do you like? And I said, Well, I love the sales side of it. I love the front end. I love getting to meet our potential new franchisees. They said, Well, why don’t you work with Mike Powers, our Managing Director. So that’s what I did. I moved into development and sales. And worked my way up from just a representative to manager and eventually, I was director of franchise sales for the last couple of years. And really got to understand the funding portion of it because it is such a big part in franchising and entrepreneurship, right? So, I realized that because we did just traditional SBA loans for the most part, but I realized that our franchisees really needed, you know, different ways to fund. Obviously, there can be big down payments on these bank loans and you don’t want to completely deplete all of the cash that you have on hand to put down on the loan. So I heard, you know, about these options or other options. One in particular called Rollover for Business Startups, also known as ROBS is the acronym for it. I know it’s terrible. That’s the IRS for you. But where people could use their retirement funds tax and penalty-free to actually put down on a loan. So I found a few funding providers who actually were able to offer that as well as SBA and a few other options that were meant for small businesses. So not just franchising, you know? Whether it’s independent or even recapitalizing a business that you currently own, they did all of that. So vetted a few different ones and Guidant really spoke to us because they were just on it in terms of their technology, being you know, top of the line. They had dedicated account managers for each franchisor, they had partner portals that you could log onto and see, you know, which clients were in which phase of the process and so much more. So I knew that I was ready to leave Louisiana. I didn’t know for how long but I upped and packed my bags and moved out here to Seattle. So I’ve been out here ever since then just, you know, funding for multiple concepts instead of just one.

Giuseppe: Wow, that’s great. So yeah, you’ve done a little bit of everything. That’s great. With the funding, so are you able, you know, to work with franchise owners as well as non-franchises? Is it all business owners that you’re able to work with?

Lexi: Yeah, exactly. So, like I mentioned, we can do, you know, franchising, we can do independent businesses, we can recapitalize existing. So we work with all types of people at all walks of life for that matter.

Giuseppe: Gotcha. Perfect. So someone that is looking for funding, right? So I speak with and work with corporate executives on a daily basis looking to transition into business ownership, looking at some franchise opportunities. So when is the best time for someone to speak with you, as far as funding options goes? Is that typically towards the end? Can they contact you in the beginning If they’re not certain about their finances?

Frist, Know Your Numbers

Lexi: That is a great question. Because if there’s anything that I would suggest, it’s knowing your numbers up front and knowing what you can afford because you don’t want to waste your time doing too much due diligence on something that is not even in your wheelhouse in terms of what you might be able to, you know, get funding for. So definitely in the beginning.

Giuseppe: And is there any, do you typically charge a fee for that intro call or to just discuss a few options that that individual may have?

Lexi: No, it’s purely educational, right? I just want to make sure that clients have the information that they need to make the best decision. And I find that just best practice. You know, I mean, if you give them the tools to make the best decision, you know, it’s building trust and obviously, I feel confident that they’ll come back When they’re ready. So no fee upfront, just whenever they’re ready to make the move.

Giuseppe: That’s great. And I wish I knew about this when I started my journey 15 years ago. So I ended up going directly to a bank. Bank denied my loan. I guess they didn’t realize I was leaving a, my employer to start my business full-time and bank dropped, basically dropped me at the last minute. So I had to get a family loan, but I did not at the time, was not aware of all the different options out there. And I’m sure there are plenty more since I started back about 15 plus years ago. So if we can just, you know, we talk on a few shows maybe two or three ago, we just talked about various options, right? People, you know, when they hear funding they’re like, Okay, well I can get a loan from a bank, right? So I can get a loan or, you know, either from a bank or a family member. And I would say nine out of 10 people that I speak with, including myself, when I started my journey, had no idea that you can utilize retirement assets to fund the business. So, you know, what’s a major advantage of working with yourself, with working with guiding versus just going, you know, the conventional loan route? Maybe if you could talk about two or three popular funding options that you’ve seen, you know, in the last couple years?

Funding Options You May Not Be Aware Of

Lexi: Yeah, for sure. And what you just described is, you know, the unfortunate reality of trying to do this on your own and not having, you know, those key people around you. Especially if you’re not familiar with franchising, right? And just like you, you’re not familiar that with all these different funding options that are available, right? So I guess the biggest difference and one of the main questions that I get is exactly what you asked is, you know, what is the difference in using a funding provider like Guidant instead of just doing it on your own. Maybe seeking out an SBA loan, you know, the small business loans on your own. Going to your local bank, right? That’s what people tend to feel comfortable with, and which I don’t know why. What kind of business are you typically doing with your local bank? I mean, most things are online these days anyway. So when you have a funding provider who obviously specializes in nothing but small business funding, you’re going to have a variety of options. Those of which you can, you know, obviously choose from that best fit your financial portfolio. So I guess the biggest difference between us and just a local lender is essentially, you’re spreading your risk, right? If you’re going with your local lender for, say, an SBA loan, and like you, if you’re denied, then usually when it comes to SBA, you’re typically denied throughout, right? You just put all your eggs in one basket. With us, we work with hundreds of lenders and typically, once we get a good understanding of, you know, you, your financial portfolio, what concepts you’re interested in most of the time, we can narrow that down to like the top dozen or so. So essentially spreading your risk to multiple lenders, right? And then if it’s a really good deal, depending on that, and then a couple of other things, we can sometimes pit those banks against one another. And that results in you know, better terms for you, and then you actually get to choose the lender that you want to work with. And there’s no upfront fee for that, right? So that’s really exciting. And then, when it comes to those loans, like we were talking about earlier, there’s typically some sort of downpayment on that, right? So most of our clients end up doing a combination of an SBA loan, so small business loans with what I was describing earlier, the ROBS program or the Rollover for Business Startups. You can actually use either, you know, all of your retirement or a portion of it as the down payment on your SBA loan so that you’re not completely depleting all of the cash reserves that you have on hand. Obviously, you want to keep a little something on hand for, you know, any emergencies or what have you. And banks will actually require that. So if you want to know a little bit more about ROBS I could definitely tell you. Most people do tend to have questions on that and kind of how it actually works.

Giuseppe: Yeah, actually, if you wouldn’t mind, the first comment I typically get and I’m sure you hear the same thing is well, isn’t there a penalty? That’s retirement assets. I was told never, you can never touch your assets if they’re in a retirement account. And I basically tell them, no, there is, obviously, there is no penalty, I would never suggest anything that had a penalty or any type of additional fees or if you would have IRS issues. So I said this is just another way. I almost look at it as a diversification tactic where you’re investing typically in a 401k, stocks, bonds, mutual funds. Maybe not, you know, utilizing the whole 401k retirement plan, but, you know, using a portion of that to fund a business. So if you could just talk a little bit more, maybe just a couple of maybe common questions you get. Because that seems to be an area where I see a lot of funding happening is with those types of plans.

Circumventing Fees the Legal Way

Lexi: Yeah, exactly. And you hit the nail on the head. Obviously, that’s going to be the number one question. What do you mean there’s no fees? I don’t have to pay any taxes. I don’t believe this. So, you know, ROBS has actually been around for quite some time. Actually, since 1974, when the ERISA tax law was passed. ERISA is an acronym, it stands for Employee Retirement Income Security Act. And under that, essentially, what it did was swapped the responsibility from the employer to the employee to save money for retirement, right? We don’t really see pension plans like we used to anymore because it’s our responsibility as the employee to put money away for retirement. So once that law was passed, you know, people took that and portions of the Internal Revenue Code and realized that they could take their retirement funds and instead of invest in the market, they could invest in a different type of stock called qualified employer securities, or QES is what we call it. That particular stock is found within a C Corp. So when we’re talking about ROBS there is a certain structure that you would have to use, and we’ll get to that in a second. But the reason that people love this program is because, you know, if you’re going to fund it, your business entirely through ROBS if you have enough in there to do so, then there’s, you know, none of that rigmarole that you have to go through with a loan, right? There’s no collateral required, there’s no credit checks, there’s no down payment. It’s essentially, you know, your own cash versus debt. And the second reason that they love it so much is that it’s fairly quick to fund. Typically only three to four weeks versus, you know, full-blown seven A SBA loan. If there’s build-out required it’s typically four to six months. So those are the two major things, right? But whenever it comes to the structure and how people actually use it, the first step is creating your business entity, right? That has to be a C Corp as we just spoke about because that holds that QES. The second step is creating a new 401k plan for that business. And then the last step is actually rolling the money, right? So we would take your existing retirement, we roll it into this new 401k plan. That’s why it’s tax and penalty-free going from one deferred plan to another. And then somehow we’ve got to get it into that C Corp. So you do that through a stock transaction. So let’s say you rolled over $95,000 then you’re 401k is going to purchase $95,000 worth of stock from your C Corp. And that exchange, your C Corp is cash-rich and you can use those funds for whatever you need to as long as it’s related to the business, right? So whether it’s paying franchise fees, build-out, hire employees, whatever. And then the end game is really where it all kind of is like the light bulb goes off, right? So there’s a fee that you pay to Guidant, right? And the IRS will look at that fee for this setup as your personal ownership in this business. So yes, your retirement funds are yours, right? So you essentially own the whole business but they want you to keep those separate, right? So essentially, look at your retirement funds as a partner. But let’s say you’ve paid Guidant $5,000, you’ve rolled over $100,000 so now, I’m sorry, 95 your business is worth $100,000. You’ve been open and operating for a little bit. You go to sell the business. It’s worth double. So now it’s worth $200,000, right? Typically, you would pay capital gains and ordinary income tax on the sale of that business. But because you are under the ROBS program and the majority of your business is owned by your quote-unquote, partner, your retirement funds, that was all pre-tax money, so you’re going to get a lot of pre-tax money back. So the only thing you’re going to pay taxes on is what’s due to you personally. So that $5,000 has doubled in value. $10,000, is coming back to you in your pocket. That’s the only thing you’re paying taxes on at that point. The rest of it, the 190, that is all being rolled back into an IRA, a qualified retirement plan. And then if you’re of age, say 59 and a half, you can just go ahead and take a distribution. And if not, then that money can just actively be traded in the stock market. So essentially, you’ve doubled your investment and you’ve made your money work for you. Basically betting on yourself doing better in business than it would in the stock market.

Giuseppe: Right. I cannot agree with you more. I can definitely relate. Sounds like a lot obviously with if that’s the direction someone is looking to go down, obviously this is step by step. It’s all going to be outlined for them I’m sure. And I know it seems like a lot of steps but it really isn’t. It just you know, I’m sure there’s some paperwork involved and you walk them through the process.

Lexi: Absolutely. That’s definitely just high-level, right? It’s very streamlined. And I know I say it very nonchalantly because I talk it every day of my life but it is a super simple process and, you know, that’s our bread and butter. That’s what we do and we do everything 100% in House. Guidant has, you know, 150 employees split between two offices. So you know 60% of them do nothing but back end admin work for the program. So It is very streamlined when it comes to, you know, doing the process through a qualified funding provider. I should say that.

Giuseppe: Right. Okay, awesome. I think that was very informative. Obviously, you know, when someone does come to you there’s gonna be multiple options that are, or you know, on occasion maybe less but they’ll be able to get a good picture of what they have available and, you know, all the various options they have. So I wanted all the listeners to know that there are options out there. You can use your retirement and it’s not just me saying it. So I say that jokingly. So, you know, we are speaking with Lexi Ingraffia of Guidant Financial. Lexi, can you walk us through a new client whether they be someone, you know, I recommend to you or someone listening to this podcast giving you a call directly. You know, what is the, you know, from that first phone call, what does the process look like? Should they have anything prepared ahead of time?

A Quick Look Into the Process at Guidant Financial

Lexi: Yeah, you know, typically my first calls are really just educating them on all of the different funding options, right? We just hit on two, SBA and the rollover. But typically I’m wanting the financial picture of kind of where they stand right now, even if you know, the client has, you know, unfortunately, just been displaced because of whatever, downsizing or whatnot. These are things I’ll want to know. And they’ll ask me all the time, well, in my prior job, I made X amount of money. Well, if you’re really gung ho about that SBA loan, you know, those lenders don’t care what you used to make. They want to know what you’re making right now. So be realistic in what your numbers actually are. And that way we can, you know, either fit you with some type of, you know, funding options, or we can come up with a game plan for what you need to be doing right now to set yourself up for success when it comes time to actually put you in front of lenders or, you know, get you fitted within a certain, you know, product for funding.

Giuseppe: Right. And yes, and I absolutely agree. I know we have done that in the past where someone was ready to make that leap into franchise ownership but the financials just weren’t there. So I know you had put together a game plan and, you know, following up six months, maybe every three to six months down the road and making sure that plan was, you know, they follow that plan, were able to maybe put away some money or pay down some debt. So that is extremely helpful. So if it’s not a right match right away, at least you have a plan in place to move forward down the road. So, well, I hope and I’m sure we can be talking about this in length for the next hour and I found this very helpful and I hope everyone listening found this helpful. Lexi, if listeners want to get ahold of you, find out more about Guidant Financial, find out a service that you offer and, you know, possibly take a look at some options, what’s the best way that they can reach you?

Lexi: Yeah. Probably by email or phone. Email’s probably the best. It’s Lexi, LEXI dot Ingraffia, which is my last name, it’s INGRA F as in Frank F as in Frank IA at guidantfinancial.com. My direct line is actually 4255890671. Those two would be the best to reach me.

Giuseppe: That sounds great. And for everyone listening, we will put all Lexi’s information on the, in the show notes and definitely contact Lexi or myself if you have any questions on any funding questions you may have. So, Lexi, I wanted to thank you again for being on the show. I look forward to definitely having you on a future episode. And thanks again. We’ll definitely talk to you soon.

Lexi: Thanks, Giuseppe. I appreciate it.