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Compare franchise financing options
Get funding to start or expand your franchise — and learn more about potential franchise opportunities.
Keep an eye on the future with seven ways to finance your franchise. And if you're still not sure where to get started, we break down the costs of dozens of top franchises across the US.
7 best franchise financing options
When you're looking to open your franchise or expand it, there are a handful of common ways to get funding:
In-house franchisor financing
Many franchisors have in-house financing for their franchisees. Franchisors typically specify how much you can borrow, the length of your repayment term and other conditions of your loan. Because there's no set standard, your exact loan options — if your franchisor offers loans at all — will vary greatly.
Your local bank or credit union may offer financing options, and national banks like Bank of America have franchise-specific loans available. However, you'll need to present a strong business plan and back your finances with experience to qualify for most bank loans.
If your franchisor is in the SBA franchise directory, you may be eligible for an SBA loan. The SBA 7(a) program allows you to use funds just like any term loan, but a large portion of your loan is backed by the federal government. The rates that you can potentially qualify for may make them worth the extra time and documents needed to apply.
You can use a resource like SmartBiz to find an SBA lender that could help your franchise secure funding.
Franchise financing company
There are lenders that specifically fund franchises. You can browse the Franchise Registry to connect with over 9,000 lenders.
While these avenues are generally thought of for unattached startups, you could obtain funding for franchising as well. Angel investors require surrendering a percentage of ownership to the person or people providing you financial assistance. But before you get involved with an investor, be clear what the terms are — and how it may impact your contract with your franchisor.
Like banks, there are online alternative lenders that lend to current and would-be franchise owners. Lenders like OnDeck and Funding Circle work with a wide variety of borrowers, including business owners with bad credit. This is often a faster approach to financing your business, but be cautious: Alternative lenders are typically more expensive than their bank counterparts.
Beyond a lender or investor, there are a few sources you could potentially tap in your personal life to fund your franchise, especially if you're just starting out.
- Crowdfunding. While crowdfunding is certainly more common with other types of startups, you could use it for some of your initial franchise costs. Just know that this is a longer process for many business owners — and some crowdfunding platforms require you to forfeit your funds if you don't meet your goal.
- Friends and family. Friends and family may be willing to invest some money into your franchise if you approach them with a solid business plan. But like crowdfunding, you may only be able to raise a small portion of the total cost of opening a franchise.
- Home equity loans. Home equity loans or lines of credit can be used to finance a business, but that doesn't make them the safest investment. If your franchise doesn't work out, then you could potentially lose your home. Be sure you've done your research and know all the risks before using your equity as collateral.
- Retirement funds. There are 401(k) loans and Rollover for Business Startups (ROBS) options out there. You'll need to put your retirement funds on the line for this to work, but if you're confident in your franchise and can handle the potential fees, it could be a quick way to get the starting funds you need to open a franchise.
Explore more business loan options for franchises
To see business loans you could qualify for, select your desired loan amount, annual revenue, time in business and personal credit score range. Then click Show loans.
Top 10 US franchises by number of locations and startup costs
$1 million–$2 million
$1 million–$2 million
$1.5 million–$3 million
Pizza shop and delivery
Wyndham Hotels and Resorts
$40 million–$65 million
Hilton Hotels & Resorts
$30 million–$110 million
Varies by brand and number of rooms
$60 million–$100 million
Pizza shop and delivery
Costs and fees of popular franchises
How do I compare my financing options?
Now that you know your different routes to choose from, here’s what to keep an eye out for when weighing your options.
- Eligibility requirements. Each franchisor has its own set of requirements for you to meet, and from there you’ll need to meet the criteria any lenders have. Confirm eligibility with the providers you’re interested in to see whether you meet their minimum standards. If not, you have the option of learning what you can change to make the cut. And keep exploring your other providers.
- Loan types. Many types of business loans need to be secured by collateral, whether that’s by your mortgage, investment accounts, vehicle, life insurance or other assets. You may find that while you still need to secure them, SBA loans come with better interest rates and requirements that aren’t as strict as other financing options. The fact that they’re guaranteed for up to 90% of their amount by the government gives lenders the confidence they need to make offers to customers who may be more risky borrowers.
- Loan amounts. Getting as close to what you need without going too far over can be an important part of getting financed. When you get only what you need, you can prevent yourself from paying unnecessary interest. But if you don’t have liquidity, get enough financing to consider having some working capital outside of your startup costs.
- Loan terms. Your term is a major factor in two pieces of your loan: how much you end up paying per month and how much you end up paying overall. A shorter loan term means higher monthly payments, but it also means a lower overall cost.
- Interest rates. Lenders determine your interest rate by weighing many factors, but your personal credit score and business plan are two of the most important. Remember that the better your collateral offered, the less of a risk a lender will see you. When you’re perceived as less risky, your interest rate is generally lower.
- Fees. Origination, underwriting and early repayment fees are typical costs that you could see. If a lender provides an APR, it includes the interest rate plus any upfront fees. Early repayment can be a conditional fee and is not reflected in the APR, so it’s a good idea to carefully read through the terms of your offer before accepting it. Learn more about business loan costs.
What do I need to apply?
You’ve got your choices nailed down and you want to apply. Here are several things that most business lenders will ask for:
- A fully prepared business plan.
- Your personal banking and income documents.
- Your personal asset and liability documents.
- Your down payment or proof of collateral (if it’s a secured loan).
- Details of what the loan is for and how much you need.
8 quick tips on getting financing for a franchise
- Read the franchise disclosure document (FDD) provided by your franchisor carefully to fully understand the costs specific to the franchise you’re representing.
- After you read the FDD, clear up any lingering questions with the franchisor, ensuring that you fully understand the costs of opening.
- Put together a well-polished plan that shows you’re ready for the responsibility of borrowing a large amount.
- Get pre-approval from your top choice lenders who offer it.
- Get to know your local small business associations.
- Talk to other franchisees in the area.
- Practice selling yourself as a business owner.
- If you get rejected, don’t give up. You may have other options if you do your research.
5 tips on running a successful franchise
- Be the biggest fan of your locations. Create a welcoming atmosphere for your employees and customers alike. Celebrate successes, and reward those who are working just as hard as you.
- Understand and be understood. You’re in charge of shaping your team — make sure it’s one based in clear communication and honesty. The same should be extended to your franchisor.
- A little optimism goes a long way. Let’s face it, today’s world can make it hard to be positive sometimes. Try to keep things on the up and up, and work toward solutions while treating problems as learning experiences.
- Safety in all things. It’s good to know when to take risks, but that should be tempered by detailed strategies for when things don’t go the right way.
- Trust your franchisor. You did your homework to choose a franchisor that’s a good fit — and a good investment. Trust them to do the right thing for the company as a whole.
Opening up a franchise is a huge undertaking that takes no shortage of time and effort. Once you’ve done your homework to find a franchisor you want to work with, you’ll want to review your business loan options to get the ball rolling.
Frequently asked questions about franchising
Check out our answers to common franchising questions.
Where can I get resources on financing a franchise?
The International Franchise Association is one of the most extensive sources of information on franchising out there. Aside from the IFA, the Small Business Administration offers a good deal of resources regarding franchising in general and financing specifically.
Can franchise fees get waived if I’m a veteran?
Yes. Depending on the franchisor, you could get the fee discounted or waived completely. You can also explore VA business loans and grants for additional financing options.
How much funding can I get from my franchisor?
How much funding you can get varies greatly between franchisors. Some will provide funding for as much as 90% of the franchising fee while others will also offer financing for associated startup costs such as construction.
How quickly can I get financed?
It depends on the type of financing you’re seeking and the lender. Financing can take anywhere from a few days to more than two months.
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