Franchise Buying Guide

Fun With Funding

Taking A Chance
Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

There are exceptions. That's precisely what Edward Hughes, 43, and Reginald Smith, 43, did to launch Bocaza Mexican Grill in Denver in 1996. "With no experience and less money, we knew we weren't going into a bank to say 'Would you give us $220,000 to open a restaurant?' " Smith recalls. "That wasn't going to happen. So I quit my job at Federal Express, cashed in my 401(k), maxed out 10 credit cards and got a second [mortgage] on my house." Hughes followed suit. Together they raised $190,000-only $30,000 short of the mark.

In retrospect, it was a risk worth taking; their first restaurant was an instant success, and cash flow quickly covered the $30,000 they'd allocated for operating expenses. And their five-unit chain begins franchising this year. "We also were able to pay down our credit cards fairly soon," says Smith. "That was expensive money at 19 percent, but back then we weren't sophisticated about finances."

Should you revert to credit cards and second mortgages to finance your new business? Hughes reflects, "Sometimes if you have something you believe in and others don't believe in you, you must do whatever it takes to make your dream come true."

"If you're not willing to put yourself on the line," adds Smith, "it's hard to ask someone else to."

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