Best Franchise Financing Options
Although owning a franchise can offer business owners significant flexibility and benefits, it can also come with a lot of expenses. Chances are, you won’t be able to pay for the expenses out of pocket and will need to take out some form of financing. Let’s take a look at how that financing process works, and how you can choose the best product to fund your business goals.
What is franchise financing?
Franchise financing is the process of funding the expenses that come with starting a new franchise or business branch. This usually means reaching out to lenders and investors that can offer you the cash to get your business off the ground.
How do you finance a franchise business?
Financing a new franchise is much like financing a regular small business. To do this, you’ll want to reach out and apply to traditional or online business lenders that can offer you large amounts of cash to get things going. Some of the most popular options for franchise funding include Small Business Administration (SBA) loans, peer-to-peer and online lenders.
Do banks give loans for franchises?
Commercial banks treat franchises seeking funds similarly to how they treat small business owners applying for financing. If you want to apply to a traditional lender first, you’ll have plenty of options to fund your franchise.
Can you start a franchise with no money?
Although it’s possible to obtain large loans that cover the bulk of the cost of getting your franchise started, lenders are also looking for borrowers who have some money in the bank or a positive business history. Before starting a franchise, it’s a good idea to have some of the initial finances saved, and you should be able to foot some of the bill on your own.
How do you qualify for a franchise loan?
Borrowers with personal credit scores above 620 and a history of high-performing business ownership will have the best shot at qualifying for a low-interest loan with flexible repayment terms. However, that doesn’t mean that borrowers with average credit or new business owners can’t find funding that works for them. With the increasing popularity of online and alternative lenders, more and more banks are willing to work with high-risk or brand new borrowers.
How to apply for a franchise finance loan
Your personal credit score is one of the biggest factors in determining your eligibility for a loan. Lenders look into this aspect more than any other on your application because it indicates how reliable you are as a borrower.
Financials (balance sheet/income statements)
Lenders also want to make sure that you make enough annual or monthly revenue to make timely repayments in full.
Having a well thought out business plan will greatly increase your chances of being approved for affordable funding. Lenders want to know not only who you’re working with, but also how you plan to help your portion of their business succeed. Working with a brand name or established franchise will boost your chances of approval.
Lenders want to know about the history of the business you intend to work with as well as your personal business ownership history. Having an established business background will be helpful in the loan application process.
Best Franchise Loan Options
Best For: If you fall short of qualifying for a loan with a traditional bank, OnDeck may be worth considering. Their loans and lines of credit are ideal for borrowers across a range of credit scores and income brackets, and can help businesses finance both one-time projects and cyclical expenses.
- Wide range of loans, starting at $5,000 with a maximum of $500,000
- Access to both loans and lines of credit
- APR as low as 9%
- Loans fund as soon as the next day
- Daily or weekly repayments
- APR as high as 99%
- Limit of $100,000 for lines of credit
- No prepayment incentive
Best For: Fundation is best for small businesses with established financial qualifications that are looking to fund projects such as vehicle purchases, major renovations or large supply purchases.
- Wide range of loans, with products ranging between $20,000 and $500,000
- APRs as low as 8%
- Quick to fund, with cash becoming available within just one to three business days
- Potential for APR as high as 30%
- Short maximum repayment terms of just four years
- Difficult for small businesses to qualify
- Repayments made every two weeks instead of once a month
Best For: StreetShares is best for established borrowers with strong cash flow who are looking for an alternative, community-based funding model.
|Loan Amounts||$2,000 to $250,000|
|APR Range||24.00% to 99.00%%|
|Repayment Terms||Up to 3 years|
|Time to Funding||Typically 1 – 5 days|
|Click “Check Rates” to apply to StreetShares|
- Short funding time, with funds becoming available within just one to five business days
- Rates starting at just 9%
- No prepayment fees
- Easier for new businesses to qualify
- May not offer as many benefits or financing opportunities to individuals who are not veterans
- Maximum loan amount of $200,000, or $250,000 for returning customers
- Potential for APR as high as 40%
- Funding hits a maximum at 20% of the borrower’s annual revenue
Best For: SmartBiz is ideal for borrowers with excellent personal credit scores and high annual revenues who are looking for larger loans for their businesses, and can wait a few weeks to receive their funds.
SBA 7(A) Loan
|Loan Amount:||$30,000 – $350,000|
|APR Range:||9.7% – 11.04%|
|Time To Fund:||As soon as 7 days|
|Loan Term:||10 Years|
|How To Qualify:||600+ Personal Credit Score
$50,000+ Annual Revenue
At least 2 years in business
|Great Option For:||Borrowers With Good Credit
|Click “Check Rates” to apply to SmartBiz|
» MORE: SmartBiz SBA Loans
- Rates starting at just 9.7%, with a maximum of 11.04%
- SmartBiz loans have a shorter funding time than a traditional SBA loan
- Amounts of up to $350,000
- Funding possible within weeks
- SmartBiz adds its own fees on top of normal SBA loan fees
- SmartBiz loans take longer to fund than many other online business loans of similar amounts
- Borrowers must meet both SBA and SmartBiz requirements
- Difficult for new businesses or borrowers with low credit to qualify
Best For: Funding Circle loans are great for businesses with a high annual revenue, who do not have an urgent need for cash. Their loans can be used to finance projects including major repairs and renovations, vehicle purchases or debt consolidation.
|Loan Amount:||$25,000 – $500,000|
|APR Range:||4.99% – 26.99%%|
|Time To Fund:||10 days on average|
|Loan Terms:||One to five years|
|How To Qualify:||660+ Personal Credit Score
No Minimum Annual Revenue
|Great Option For:||Established Businesses, Not Sole Proprietors|
|Click “Check Rates” to apply to Funding Circle|
- Wide range of loans, with amounts ranging between $25,000 and $500,000
- Flexible loan terms between one and five years
- No minimum annual revenue requirement
- Faster application and funding process than a standard SBA loan
- Slower to fund than other online lenders, with most loans funding within an average of 10 days
- Difficult for new businesses to qualify, with a minimum of two years in business required
Opening a new franchise is an exciting, and sometimes expensive process. Whether you’re opening your first franchise or working on your tenth, the wide variety of business lenders and options should make it easy to find funding that’s right for you. Before committing to a loan, however, make sure to compare multiple offers and rates to find the most affordable funding for your new franchise.