How do I fund a franchise?

The most common methods are SBA 7(a) loans, ROBS (retirement funds), home equity, and franchisor financing. Most franchisees combine two sources.

What credit score is needed for franchise financing?

Most SBA lenders require 680+ personal credit score for franchise loans. Some accept 650+ with strong collateral.

How long does franchise financing take?

SBA 7(a) loans take 60-90 days. ROBS takes 3-4 weeks. Plan before signing the franchise agreement.

ROBS Franchise Funding: Complete Guide

ROBS (Rollover for Business Startups) lets you use your 401k or IRA to fund a franchise with no early withdrawal taxes or penalties — and no debt, because it is not a loan. About 10,000 ROBS transactions are completed annually in the US, most for franchise purchases. This guide explains exactly how it works.

Last Updated: July 2026 | SharpSheets Editorial Analysis

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How ROBS Works: Step by Step

Step 1: Form a new C-corporation (ROBS requires C-corp, not LLC or S-corp)
Step 2: The C-corp establishes a 401(k) retirement plan
Step 3: Roll your existing retirement funds into the new 401(k) — tax-free and penalty-free
Step 4: The new 401(k) purchases stock in the C-corp
Step 5: The C-corp uses those funds to buy the franchise

The result: your retirement funds become equity in your franchise. No loan, no interest, no monthly debt service. The tradeoff is your retirement savings are at risk if the business fails.

ROBS Costs

Cost	Typical Range
Setup fee (ROBS provider)	$4,000 – $6,000
Monthly administration	$100 – $200/month
Annual 401(k) filing (Form 5500)	$500 – $1,500/year
Total first-year cost	~$7,000 – $10,000

ROBS vs SBA Loan

Factor	ROBS	SBA Loan
Debt	None	Yes
Monthly payment	None	$3K–$8K+
Risk	Retirement savings	Personal assets/credit
Setup cost	$7K–$10K	SBA fees ~2-3% of loan
Speed	3–4 weeks	60–90 days
Best use	Down payment or full funding	Full project financing

Frequently Asked Questions

Is ROBS legal?

Yes — ROBS is legal when properly structured and administered. The IRS has issued guidance on ROBS and does not prohibit them, but does scrutinize them for compliance. Using a qualified ROBS provider who handles ongoing plan administration and Form 5500 filings is essential.

How much retirement savings do I need for ROBS?

Most ROBS providers require a minimum of $50,000 in rollable retirement funds. Practical minimum for a franchise down payment via ROBS is $75,000-$100,000. Roth IRA funds can be used but with more complexity.

What retirement accounts work with ROBS?

Traditional 401(k), 403(b), traditional IRA, SEP IRA, and SIMPLE IRA accounts all work. Roth accounts have additional complexity due to after-tax contributions. Current employer 401(k) plans typically cannot be rolled while still employed.

What are the risks of ROBS?

The primary risk is losing retirement savings if the business fails. IRS audit risk is also real — the IRS scrutinizes ROBS arrangements and can disqualify the plan if not properly maintained, triggering taxes and penalties retroactively. Ongoing compliance with a qualified provider is non-negotiable.

Can I use ROBS to buy an existing franchise?

Yes — ROBS works for both new franchise openings and resale acquisitions. Some lenders also allow ROBS combined with SBA for franchise resales, letting you use retirement funds for the down payment and SBA for the rest.

Bottom Line

ROBS is a powerful tool for franchisees with significant retirement savings who want to minimize debt. The tradeoff — retirement savings at risk — is real and should be weighed carefully. Used as a down payment source alongside an SBA loan, ROBS can get you into a franchise with zero personal cash out-of-pocket.

— SharpSheets Editorial Team | sharpsheets.io | Last Updated: July 2026