In this new chapter of Ownership Essentials, I sat down with franchise funding expert Al Lesko to explore what every aspiring business owner needs to know about capitalizing their new business. Our conversation covered everything from the first steps of pre-screening to the long-term strategies that can shape your future growth and exit plans.
Why Funding Matters for Franchise Owners
Capital is one of the biggest hurdles in business ownership. The right funding strategy can mean the difference between constant stress and long-term stability. Al explained that the journey should always begin with understanding what funding options are realistically available. Jumping into franchise conversations without clarity often leads to wasted time and missed opportunities.
The Pre-Screening Advantage
When buying a home, you start with a pre-approval. Franchise funding works differently. Instead of pre-approvals, providers use pre-screening. This involves a soft credit check that won’t affect your score, a review of your personal financial statement, and a guided conversation about budget, lifestyle, and risk tolerance.
It’s typically free and only takes 30–45 minutes. The outcome is a clear sense of your financial reach—what funding range you’re likely to qualify for. That matters not only for you but also for franchisors, who prefer candidates who have already taken this step. It signals that you’re serious, credible, and financially prepared.
Exploring Funding Options
There isn’t one path to funding a franchise. Instead, owners often use a mix of strategies:
SBA Loans: These are bank-funded loans backed by the Small Business Administration. They provide stability and standardized terms, making it possible for banks to lend to more small businesses without requiring extreme collateral. The key is working with banks that specialize in SBA loans rather than relying on a neighborhood branch.
Retirement Rollovers (ROBS): Many people have most of their wealth in retirement accounts rather than cash savings. With a rollover, non-Roth retirement funds can be used to start a business. The business itself becomes part of a retirement plan, offering tax benefits, long-term savings potential, and even future growth opportunities. Al emphasized that this is not just a funding tool but also a retirement and tax strategy.
Other Options: These include home equity lines of credit (HELOCs), term loans, or personal loans. Sometimes the smartest approach is combining multiple sources to create a balanced funding package.
Mistakes First-Time Owners Make
Al has seen plenty of new franchisees underestimate what’s required financially. Three mistakes stand out:
Under-capitalization – leaving too little cushion for marketing, unexpected costs, or slow ramp-up.
Cutting corners – focusing only on opening the doors instead of planning for growth.
Overusing personal cash – draining savings instead of keeping reserves.
Banks rarely extend additional funds soon after an SBA loan closes. If you miscalculate at the start, you could find yourself stuck.
Think Beyond Day One
One of the most valuable insights from our conversation was the importance of thinking beyond the grand opening. New franchisees often have blinders on, focusing only on how to get started. But smart funding decisions should include growth strategy:
What if you get a chance to buy out a competitor?
Would you expand into multiple territories if things go well?
How will you know when it’s time to sell and exit?
Funding isn’t just about getting to opening day—it’s about ensuring you have the flexibility to grow or pivot in the years ahead.
Advice for the Hesitant Owner
Money is often the most intimidating part of starting a business. Al’s advice for anyone feeling that hesitation is to stay open and honest. Be transparent with your funding source, understand how payments will affect your lifestyle, and make sure you’re properly capitalized so you have options if challenges arise.
The path to business ownership doesn’t have to feel uncertain. With the right funding partner and the right strategy, you can move forward confidently, knowing you’ve built a solid financial foundation for your new chapter.