The Brian Beers Show, Episode 302
Title: How to Fund Your First Franchise: Every Proven Option Explained
Date: December 22, 2025
Host: Brian Beers

Episode Overview

In this episode, Brian Beers, a seasoned franchise entrepreneur, provides a comprehensive, no-nonsense breakdown of funding strategies for prospective franchise owners. Drawing from his 15+ years of experience scaling an 8-figure franchise portfolio, Brian walks listeners through determining startup costs, weighing debt versus equity, understanding investor expectations, and implementing a hybrid funding approach he’s personally developed. The emphasis is on actionable, realistic guidance over hype, with advice tailored to first-time franchisees.

Key Discussion Points & Insights

1. Determining How Much Money You Actually Need

(Starts at 00:00)

• Franchise Cost Myths:
  • "All franchises are expensive, right? Well, it depends on your definition of expensive." (Brian Beers)
  • 50% of franchises cost less than $350,000 per location; many solid service-based options are in the $100–200k range.
• Sources of Cost Estimates:
  • Initial required investment can be found in Item 7 of the Franchise Disclosure Document (FDD).
  • Costs include franchise fee, grand opening, marketing, equipment, initial rent, leasehold improvements, and crucially, working capital.
• Budgeting Mindset:
  • "Whatever working capital budget you have, double it. Take your estimated year one sales—cut in half." [02:36]
  • Set realistic expectations: Success is a grind, not "sunshine and rainbows."
• Start Small, Prove Yourself:
  • Advises against going big on the first deal—“Start small, be conservative and then 10x your actions.” [03:05]
• Real-World Example:
  • Cites a client who started with one profitable location before raising $1 million to expand.
• Franchisor Net Worth & Liquidity Requirements:
  • Requirements increase with investment size:
    • Low-cost: Net worth of $50–100k
    • Mobile: $250–300k
    • High-cost (salons, parks): $1.5–2 million
  • If you don’t qualify alone, you'll need a partner.

2. Debt vs. Equity: Funding Structures for Franchises

(Starts at approx. 08:30)

Debt Options (Ranked Easiest to Hardest):

1. Franchisor Financing:
   • Some franchisors (especially those backed by private equity) may offer internal financing for fees or equipment, but this won’t cover all costs.
2. HELOC (Home Equity Line of Credit):
   • Use real estate equity; features low rates, interest-only periods, and flexible repayment.
3. Private Debt (Friends, Family, Private Investors):
   • Highly flexible terms; minimal rules if funds go to your entity (LLC/S Corp).
   • "You can literally set any terms that you and the lender can agree on... But just know that you're not bound by the requirements of traditional lenders when you go private." [11:14]
   • Expect higher interest than traditional loans, but the speed and flexibility often compensate.
4. SBA Lending:
   • U.S. Small Business Administration guarantees loans of 70–80% of startup costs.
   • Example: On a $500k budget, SBA might fund up to $400k; you bring $100k.
   • SBA Rules:
     • Requires personal and business asset collateral.
     • Secondary loans must be subordinate.
     • Strong debt coverage ratio needed.

Equity Funding Considerations:

• Ownership and Guarantees:
  • All equity holders often required to sign franchise agreements (including non-compete clauses and personal guarantees).
  • This is a sticking point for passive investors; "for savvy investors, the risk and downside... are not worth the potential return." [18:43]
• Alternatives and Workarounds:
  • Some franchisors allow a minority equity carve-out (e.g., only 67% of owners need to sign).
  • If using both SBA and equity, avoid any investor owning more than 20%, or they must personally guarantee the SBA loan.

3. Unique Hybrid Funding Structure: Debt + Equity "Phantom Equity"

(Starts at approx. 24:00)

• Brian’s Innovation:
  • Combines the simplicity of debt with an “equity-like” upside, bypassing franchisor equity complications and personal guarantees.
  • Example:
    • Franchisee raises $450,000 in loans, contributes $50,000 own funds.
    • Terms: 10% interest, 12 months of interest-only payments, 10-year amortization, balloon at year 5.
    • Investors also receive a share of profits above $10,000/month (e.g., 30% of profits over that hurdle).
    • "In addition to the interest, you offer investors a share of the profits. This makes it more exciting than just a 10% return." [26:02]
• Advantages:
  • Flexible terms; franchisor has no involvement; avoids non-compete and guarantee issues.
  • Options for buyouts, structuring profit-sharing, and defining what expansions investors participate in.
• Legal Guidance Required:
  • "Now I highly recommend using a business attorney who's experienced in fundraising and creating these types of documents. I'm not a lawyer. None of this is legal advice. This is just my experience..." [32:20]

4. What Returns Do Franchise Investors Expect?

(Starts at approx. 33:22)

• Investor Priorities:

  • Risk: "What if nothing goes to plan? What if the shit hits the fan?" [33:27]
  • Reward: Is the upside compelling?
  • Liquidity: Ease of converting investment to cash.
  • Time: How much involvement is required?

• Competing Opportunities:

  • Money market (5% risk-free, liquid).
  • S&P 500 (8–10% over time).
  • Hard money lending (10%+), franchise partnerships (30–40%), private lending (12%), real estate development (15–20%).
  • "The potential rewards of investing in a private illiquid business like yours must far outweigh the risk." [36:12]

• Final Advice:

  • "Start small. Be conservative. Get the reps in, learn the business. It's much easier to raise money from a position of strength than weakness." [37:02]

Notable Quotes & Memorable Moments

• "Owning franchises could change your life... The good news is you only need one to get started. The bad news is—they are not cheap." [00:00]
• "Set an expectation that starting the business will be a grind versus thinking that it’s all going to be sunshine and rainbows." [02:38]
• "It's better to start small, be conservative and then 10x your actions." [03:05]
• "You can literally set any terms that you and the lender can agree on... Just know you're not bound by the requirements of traditional lenders when you go private." [11:14]
• "For savvy investors, the risk and downside of fully guaranteeing your franchise agreement are not worth the potential return." [18:43]
• "In addition to the interest, you offer investors a share of the profits. This makes it more exciting than just a 10% return." [26:02]
• "The potential rewards of investing in a private illiquid business like yours must far outweigh the risk." [36:12]

Timestamps of Important Segments

• 00:00 – Introduction & overview of franchise funding realities
• 02:36 – How to budget and why to double your expected working capital
• 03:05 – Why starting small is key
• 08:30 – Debt funding options explained
• 11:14 – Flexibility in private debt structuring
• 18:43 – Challenges with equity and franchise agreements
• 24:00 – Brian’s hybrid funding "phantom equity" structure
• 26:02 – How profit sharing can make debt more attractive to investors
• 32:20 – The importance of legal counsel
• 33:27 – What investors require in franchise deals
• 37:02 – Final words of encouragement and caution

Takeaways

Brian Beers emphasizes starting conservatively, truly understanding your financial needs, and building proof before seeking major capital. He offers a detailed, flexible framework for structuring debt and equity, including a unique hybrid structure that can reduce complications for first-time franchisees. The tone is pragmatic, experience-based, and consistently focused on actionable, real-world advice.

If you’re considering your first franchise, this episode is a must-listen for demystifying funding and putting you on the right path from day one.