As Credit Tightens, Aspiring Franchisees Rely Most on Personal Savings for Business Startups

By: Michael Alston for Franchise Insights

December 13, 2023 — As interest rates rose and lending standards tightened, small businesses and future franchise owners have been looking to unconventional sources to finance their growth plans. From available credit card balances to retirement accounts and crowdfunding, entrepreneurs are finding ways to move forward.

Franchise prospects said they expect “personal sources” to make up the majority of funding for their business launches, cited among the top three sources by 44.8% of respondents in a November 2023 survey. Those planning to take advantage of Small Business Administration loans and  bank loans stood at 40% and 34.3% respectively. Another 11.4% of respondents are hoping to take advantage of in-house financing by the franchise that they seek.

These results are consistent with data from March 2023, just as bank failures were making headlines and  “personal savings” was the most often funding source selected, at 47.4% of respondents. Similarly in July, personal savings was at the top of the list of franchise funding sources at 51.3%.

The category of “partner in business” grew the most from July, rising from eighth to fourth place.  Coming in fifth place was “friends and family”, up from seventh place.

Home equity dropped the most as a category, from fifth to ninth place, likely due to the increase in interest rates applicable to those loans.

These results are according to surveys of aspiring business owners conducted by in November 2023. The total percentages above add up to more than 100% since respondents were instructed to choose their top three sources.

The “other” option was chosen by 7.6% of respondents. The top “other” sources cited were as varied as “employment income”, “grants”, “inherited IRA” and  “sale of home,” among many more. 

Funding remains a top concern of aspiring franchisees, as 70.1% cite it as a key factor in their startups in the November 2023 Small Business Startup Sentiment survey.

By aggregating sources into two buckets, we see that entrepreneurs are assuming that under half (38.5%) of startup capital sources will be from their own personal resources. The remaining 61.5% of sources will come from outside their balance sheets. “Other” sources were excluded from this view.

Personal Sources – for this analysis include personal savings, retirement funds (401K or IRA), credit cards, cash value insurance policies, and liquidation of securities. Though home equity lines of credit are technically a loan secured by the home, it was included for this analysis since it represents buyer equity.

Outside Sources – include Small Business Association (SBA) loans, banks or other loan providers, franchisor financing, venture capital, angel investors, and friends and family.

The November “personal sources” share of anticipated franchise funding stood at 38.5%, down some from 43.6% seen in July but consistent with the 38.5% reported for February 2023. Previously,  36.5% was seen in May 2022 and 33.8% seen in our analysis of startup funding sources back in March 2022..

Undoubtedly higher interest rates are a key factor in the expected reliance on personal savings and sources of capital. Leverage to make a larger purchase and the tax deductibility of business interest go a long way to explain the popularity of debt among the top three sources of startup capital. conducts a monthly “mystery shopping survey” as well as the Small Business Startup Sentiment Index™ (SSI) of individuals who have recently inquired about businesses for sale. The most recent Startup Sentiment Index™ and “mystery shopping” surveys were conducted in November 2023.  Responses related to financing were collected from both instruments.

FranchiseVentures is the leading franchise lead-generation platform for potential franchisees to thousands of growing franchise systems in the United States and Canada. Its franchise lead generation brands include, Franchise Solutions, Franchise Gator, Franchise Opportunities, Franchise For Sale, and, and together they provide the largest aggregation of prospective franchise buyers in the U.S.

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Published on Wednesday, December 13th, 2023.

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