Subscribe to Entrepreneur for $5

How much of my personal funds should I use to start a franchise?

Opinions expressed by Entrepreneur contributors are their own.
Is there any advantage to borrowing from a bank verses using my personal capital?
You've probably heard it many times lately but I'll say it again: In these tough times, cash is king!

More so than in a hot market, during a recession and/or credit crunch (both of which we have now at the same time) you should hoard your own cash because the need might be greater than normal and the availability of credit might be less than normal.

If you determine later that you made a mistake by borrowing too much when it turns out you didn't need to, the relatively small amount of extra interest expense you paid is not very important compared to the opposite risk of running out of cash and not being able to replenish it when needed. That scenario could cost you your entire investment.

Having said that, you certainly don't want to go to a loan shark or do anything else that doesn't make business sense in order to increase your amount of leverage. The bottom line in today's market is that you should preserve as much of your personal cash and borrow as much of your capital needs as you can, as long as you can do so on a reasonable basis in terms of the fees and interest rates you will pay.

Entrepreneur Editors' Picks