Hey everyone, Giuseppe Grammatico here, your Franchise Guide! Welcome back to the Franchise Freedom Podcast. I’m always thrilled when we can dive deep into topics that are absolutely crucial for anyone considering the leap into business ownership, especially those looking to escape the corporate grind and achieve franchise freedom. Today, we’re tackling one of the biggest hurdles and sources of confusion: funding your franchise.
You asked for more expert guests, and I’m excited to deliver! Following our recent chat with franchise attorney Kit Higgs, today we have another industry powerhouse: Mike Minitelli, Chief Development Officer at Benetrends Financial. Benetrends is a name synonymous with franchise funding, and Mike brings a wealth of knowledge and experience to the table.
Before we jump in, remember, navigating the franchise process, including funding, can feel overwhelming. If you need guidance, head over to ggthefranchiseguide.com and book a free call. Let’s explore your options together.
Now, let’s unpack the world of franchise funding with Mike!
Meet Mike Minitelli: From Corporate Transplant to Funding Expert
Like many people I work with, Mike transitioned from the corporate world into the dynamic realm of franchising. After years in business development and tech sales, a friend introduced him to franchise funding, and he’s never looked back. At Benetrends, a company renowned for pioneering the ROBS funding strategy, Mike now leads the sales team, helping aspiring entrepreneurs understand their financial pathways to business ownership.
“I honestly, I fell in love with our industry,” Mike shared. “I fell in love with what I was doing… It’s great to let people know that they have options out there, right? When it comes to lending.”
The Funding Hurdle: Why Early Consultation Matters
One of the first things Mike and I discussed is when you should start exploring funding. My approach, much like buying a home, is to get pre-qualified early. You wouldn’t start house hunting without knowing your budget, right? The same applies to investing in a franchise.
Mike wholeheartedly agreed:
“I usually recommend after that first call [with a consultant]… the funding and the financial side of it. Arguably is the most important part of it… letting them get pre-qualified early on in the process is better for the candidate. It’s better for the consultant, the brand, everybody along the process.”
Knowing your funding options upfront prevents wasted time and sets realistic expectations. It can even open doors you didn’t know existed! Which brings us to a key funding strategy…
Unlocking Retirement Funds: Demystifying the ROBS Plan
This is the “hidden gem” Mike mentioned. ROBS stands for Rollover as Business Startups. It’s a legal, IRS-approved method allowing you to use funds from eligible retirement accounts (like old 401(k)s or traditional IRAs) to fund your business without incurring early withdrawal penalties or taxes. Benetrends’ founder, Len Fisher, actually architected this strategy over 40 years ago!
Mike explained it brilliantly, comparing it to processes familiar to corporate professionals:
- Corporate Rollover: When you leave a company (like J&J), you often roll your 401(k) into an IRA or your new company’s (like Pfizer’s) 401(k). This is tax/penalty-free.
- Company Stock Purchase: Within your new 401(k), you might invest some funds in company stock (e.g., Pfizer stock). That money then goes to the company (Pfizer) for their use.
- ROBS Explained: The ROBS process mirrors this. You set up a new corporation for your franchise (e.g., “Minitelli Enterprises”). This corporation creates its own qualified retirement plan (like a 401(k)). You then roll funds from your old, eligible retirement accounts into this new corporate retirement plan (tax/penalty-free). Finally, the corporate retirement plan “invests” in the stock of your own company (“Minitelli Enterprises”). That investment money flows into your corporate checking account, ready to be used for legitimate business expenses – franchise fees, build-out, equipment, working capital, even your own salary.
“It’s really no different Giuseppe of the rollovers most of us have done in our corporate life,” Mike clarified.
The benefits? Accessing pre-tax dollars, having more control over your investment (betting on yourself!), potential diversification away from Wall Street, speed (often 3-4 weeks), and no debt payments on those funds. As Mike noted, even people with cash often prefer ROBS to keep their liquid assets available and use pre-tax retirement funds instead. I personally wish I’d known about this 20 years ago when I was denied a bank loan and had to borrow from my grandparents!
Navigating SBA Loans: What You Need to Know
The Small Business Administration (SBA) loan is another common route. It’s crucial to understand that the SBA doesn’t lend money directly; they guarantee a portion of the loan made by a traditional lender (like a bank), reducing the bank’s risk and making them more willing to lend to small businesses.
Mike outlined the typical requirements banks look for with SBA loans:
- Good Standing: Clean record, US citizen, etc.
- Credit Score: Usually 670 or above.
- Equity Injection: The borrower typically needs to contribute 10-20% of the total project cost (“skin in the game”).
- Post-Closing Liquidity: Sufficient cash/assets remaining after the equity injection to cover living expenses and debt service.
- Collateral: Sometimes required, often a second lien on real estate, especially for larger loans.
Benetrends works with around 60 different lenders, acting as a matchmaker. They know which lenders favor specific industries (fitness, QSR, home services) and loan sizes, helping you find the best potential terms and rates. They also guide you through the complex application process, including business plan writing.
Key SBA loan features Mike mentioned:
- Term: Typically 10 years.
- Prepayment: NO prepayment penalties – you can pay it off early without extra fees.
- Interest Rate: Variable, tied to the Prime Rate (usually Prime + a margin, capped by the SBA). Adjustments are typically quarterly, not monthly.
Beyond ROBS & SBA: Exploring Other Funding Avenues
Benetrends takes a holistic approach. Sometimes, the best strategy doesn’t involve their core products. Mike highlighted other options:
- Home Equity Line of Credit (HELOC): Leveraging the equity built up in your home.
- Cash/Liquidity: Using readily available savings.
- Portfolio Loans (Securities-Backed Line of Credit): Borrowing against the value of your non-retirement investment portfolio without selling assets (and triggering taxes). This can offer competitive rates.
- Unsecured Lending: Loans not backed by specific collateral (often carry higher interest rates).
- Friends & Family: Borrowing from personal connections.
The Power of Combining Strategies & Avoiding Undercapitalization
Often, the optimal solution involves combining methods. Mike noted:
“Very commonly, robs and SBA are combined. Most people use Robs for that 15 to 20% equity injection, and then they borrow the rest… I kind of call it like Frankenstein funding, right? You take a little bit of this, a little bit of that, and you kind of put it all together.”
This allows you to strategically leverage different asset types. However, a critical warning Mike shared is the danger of undercapitalization:
“I think one of the biggest mistakes Giuseppe people make is going into this undercapitalized… I always recommend trying to get a little bit more than you think you need. For that rainy day fund.”
Business takes time, costs can fluctuate, and unexpected things happen. Having that financial buffer is essential for weathering storms and fueling growth. Don’t just aim for the bare minimum investment.
Why Expert Guidance is Crucial
Navigating these options can be complex. Working with a certified franchise consultant like myself and a funding expert like Mike and his team at Benetrends provides invaluable guidance. We help you understand the landscape, evaluate your specific situation, and develop a strategic funding plan before you get too far down the road with a specific franchise.
As Mike said, “Sometimes the best plan is not to utilize us at all… our job as funding consultants is to educate the individual on their options.”
Final Thoughts
Understanding your funding options is a critical, foundational step in your franchise journey. Don’t let assumptions or lack of knowledge hold you back. Options like ROBS can be game-changers, and combining strategies strategically can set you up for success. Get educated early, be proactive, and surround yourself with experts.
Ready to explore your funding options and find the right franchise fit?
- Learn more about Benetrends: www.benetrends.com
- Explore franchise opportunities: https://ggthefranchiseguide.com/right-fit
Fun Fact: Mike Minitelli isn’t just a funding expert; he’s also a former college basketball player!
