Al Lesko on Franchise Funding Essentials

Most people approaching franchise ownership start by shopping for a concept. They find a brand they like, run the unit economics, and only then try to piece together the capital. By the time money enters the conversation, the concept has already picked them.

Al's approach reverses the order. Before any concept enters the picture, the first question is simple: what can you actually fund, and how? That answer — driven by credit profile, available equity, retirement balances, cash reserves, and income — defines which franchise tiers are realistic and what the capital structure should look like before you're emotionally committed to a specific outcome.

The pre-qualification process takes 30–45 minutes. A soft pull on credit (no score impact), a review of your financial statement, and an honest assessment of the funding paths open to you. What comes out the other side is the real range of franchise investments you can finance — on terms you can live with.

It's the mortgage-pre-approval logic applied to franchise buying: know what you qualify for before you shop.

Franchisors aren't just underwriting your bank balance. They're evaluating whether you'll be a responsible operator and a long-term partner. Territories, training, ongoing royalty streams, and brand reputation all ride on the person they hand the system to.

“My degree's in criminology, so I'm always looking over my shoulder. When it comes to analyzing people, it's the same thing with a franchisor. They're looking to see if you're gonna be a good partner — not just if you're financially qualified.”

This is where pre-qualification does more than unlock funding. It's a credibility signal. Walking into a discovery day pre-qualified tells the franchisor this person is serious, organized, and already thinking like an owner. The conversation changes. You get the real data, the real introductions to existing franchisees, the real answers about unit economics — not the marketing version of the deck.

Buyers who aren't pre-qualified tend to get the polite version of every answer, because the franchisor doesn't know yet whether the conversation is going to close or fizzle.

The SBA 7(a) loan is the single most common funding path for franchise ownership — and it's also the one most first-time buyers misunderstand.

The mechanics: the SBA doesn't actually fund the loan. A bank does. The SBA guarantees a portion of the loan back to the bank if the borrower defaults, which is what makes the bank willing to lend $150K, $300K, or $500K against a new business with no operating history. Without that guarantee, the terms would be predatory or the loan simply wouldn't exist.

Because program terms are set at the federal level, every qualified borrower gets the same rate structure, the same repayment terms, the same underwriting framework.

“Since it is a government loan, it isn't like, 'I've got super great credit, I'm gonna get better terms.' It is the same for everybody.”

Credit score and income affect whether you qualify — not the rate you get once you do. That's a departure from how most consumer lending works, and it surprises a lot of first-time buyers in a good way.

The instinct after deciding on an SBA loan is to walk into whichever bank holds your mortgage and checking account. Sometimes that works. Often it doesn't.

The SBA designates certain banks as Preferred Lending Partners (PLP). PLP lenders have the authority to approve SBA loans in-house without routing every file through an SBA review — which dramatically compresses the timeline. Your local bank may not be a PLP. And even among PLP lenders, each one specializes in different loan sizes and industries. Some won't touch deals under $500K. Others focus on the $50–150K range. Some prefer certain concepts; some avoid them entirely.

Matching the deal to the right PLP lender is where most of the real value of a funding specialist shows up. You're not just getting help with paperwork — you're getting routed to the bank most likely to fund your specific deal on the fastest timeline.

Preparation matters just as much. The more complete your documentation going in, the less time your file spends in limbo. Incomplete files sit. Complete files move.

American savings balances are at historic lows, but retirement account balances are where a lot of would-be franchise buyers actually have capital. The problem: early withdrawal from a traditional IRA or 401(k) triggers income tax plus a 10% penalty, which can vaporize 30–40% of the funds on the way out.

The Rollover as Business Startups (ROBS) structure solves this. A ROBS lets you roll a non-Roth traditional IRA or 401(k) from a former employer into a new retirement plan established under a newly-formed C-corp — which becomes your franchise business. The retirement plan then purchases stock in the C-corp, and those funds become equity capital for the business.

The mechanics are precise — you need the right plan documents, ongoing fiduciary compliance, and a qualified administrator — but the outcome is powerful: retirement capital deployed into the business with no tax, no penalty, and the ability to keep contributing up to the annual maximum going forward.

ROBS is rarely a standalone funding source. It's an equity injection that unlocks additional borrowing, because SBA lenders want to see the buyer bringing 10–30% of their own capital to the table.

“Sometimes there's just not one path to getting funded. There might be several paths — and that's really what we do, is we talk about all of those paths.”

The clean single-source loan is the exception, not the rule. Most franchise buyers end up assembling a stack: an SBA 7(a) for the core build-out, a ROBS rollover for the equity injection, a home equity line or personal term loan for working capital, and often an unsecured credit line as a buffer for slow opening months.

The advantage of stacking is optimization. Each source has different costs, timelines, and tax treatments. Putting the whole deal on an SBA loan may push the loan size high enough to require extra personal collateral. Pulling too much from home equity exposes the house. Maxing a ROBS leaves no retirement cushion.

A well-designed stack distributes capital across sources so each one is carrying the load it's best suited for. The total cost of capital ends up lower than any single-source approach would have produced.

Al pointed to three failure modes he sees most consistently among new franchise owners.

First, undercapitalization. The single most common and most avoidable cause of new franchise failure. Owners borrow just enough to open, run out of runway before revenue catches up, and either close or make desperate decisions with personal cash at the worst possible moment.

Second, cutting corners on the build-out. Saving $15K by skipping the signage upgrade, underpowering the kitchen, or choosing the cheaper contractor can cost $100K in deferred renovations or lost revenue two years in.

Third, underinvesting in marketing. New franchises need exposure to generate the revenue curve the unit economics assume. Marketing budgets that feel reasonable in the spreadsheet often turn out to be inadequate in the first six months, when the business is fighting for every first customer.

The thread running through all three is optimism bias. New owners build their capitalization plan against their best-case revenue curve, not the realistic one. The fix is structural: build the capital stack against a realistic downside, not the pitch deck.

Al's rule of thumb: preserve your own cash. If everything goes to plan, you can repay borrowed capital early — most programs have no prepayment penalty. If it doesn't, you have a reserve you don't have to ask anyone to approve you to use.

The last point Scott raised is the one most first-time buyers skip entirely: what's the exit?

If you plan to own one location and run it for twenty years, one capital structure fits. If you want to own the territory and roll out five locations, the capital structure — and the entity structure, and even the brand selection — looks different from day one. If you're building to sell in five to seven years, it's different again.

These aren't questions to revisit someday. They're questions that shape every early decision: which franchise you pick, how you structure the business entity, how you document the first location, which lender relationships you build.

The best time to think about the exit is before there's anything to exit.