The 2021 Funding Guide For Franchisors

Many aspiring small business owners understand the value of opening a franchise. They have the flexibility of owning their own business and the security of a recognizable, established brand.



Starting a franchise means making a significant capital investment, however. Not everyone has the necessary funds – sometimes as much as $100,000 – immediately available. What options are available to someone looking for franchise funding?

Franchisees may have an easier time securing capital from lenders because they are buying into an established brand. They can prove viability and return on investment from comparable franchise owners. Continue reading to learn more about where and how to get franchise funding for your business venture.

Sources for Franchise Funding

The options available for a franchise loan will depend upon a person’s personal credit history, the amount of funding they need, and the reputation of the franchise they are purchasing. There are a variety of options from bank loans to crowdfunding that offer different advantages depending on what someone qualifies for and what they need.

Commercial Small Business Loans

A traditional bank loan is a great option for someone with a strong credit score history and solid franchise business plan. The better your creditworthiness, the better terms you can expect to receive. But the application and approval process can be long and drawn out.

One of the alternatives is a Small Business Administration loan. This is a secure funding option for franchisees and often have more affordable interest rates and repayment options than a traditional bank loan. The SBA guarantees a percentage of the loan, making you less of a risk for the lender.

The standard SBA (7) loan guarantees 85% of loans less than $150,000 and 75% for loans over $150,000. The maximum limit for an SBA (7) loan is $5 million and the term can be as long as 25 years. 

An SBA loan may require collateral to receive financing. Often you need to pledge all available business and sometimes personal assets for the collateral. This increases your chances for approval but could be devastating if you default.

Franchisor Financing

Another way to raise franchise capital is through franchisor financing. Not every franchisor has this option but more are beginning to offer it.

Franchisors may offer financing through a partnership program with commercial lenders or directly through their corporation. The funds can be used to pay for the franchise fees, equipment purchases, or other startup costs.

Alternative Financing

If you don’t qualify for a traditional loan and your franchisor doesn’t offer in-house financing, you may need to look at alternative sources. Private loans from family or friends, partnerships, online lenders, and/or business crowdfunding may offer a solution for you.

A Family or Friend Loan

If you have the ability to borrow from family or friends, you may be able to negotiate more favorable terms than anywhere else. They may agree to provide funds in return for a lower interest rate or easier repayment terms than a bank. Or, they may be willing to be a business partner and split the profits with you.

The disadvantage is it could compromise your relationship if anything goes wrong. If the loaner suddenly encounters financial problems, they may want to call in the loan earlier than expected. Or, if the business isn’t as successful as anticipated you may default on the loan.

Make sure any agreement is put in writing. Clearly state all of the terms and repayment expectations. Be sure to include options for early repayment and refinancing possibilities.

Online Lenders

A newer party to the lending world Is the online loan system. They offer quick access to money with faster approval processes and have more lenient qualification requirements. It may be possible to have funds within a week of submitting your application.

However, their loan terms are shorter. And they are often more expensive than bank loans. But if you don’t qualify for a traditional business loan, the accessibility and convenience may be worth it.

Business Crowdfunding

Crowdfunding is the newest model in the business financing world. In this scenario, you advertise your business proposition online and offer perks to anyone who pledges or donates funds to your campaign. Depending on how you structure your campaign, these perks may or may not include a share of the profits each fiscal year.

You can try to run your own campaign through a personal website and email blasts to everyone you know. Most people will use one of the established crowdfunding platforms. Although they will take a percentage of the funds you earn, they have a wider audience and established reputation that could help you raise more.

Improve Your Chances to Receive Franchise Financing

One of the best ways to improve your chances of getting approved by any of these financing options is to have a detailed business plan. A good business plan is an overview of how much money you need and how it will be used. It should include the potential cash flow and profit & loss forecasts so the lender can clearly see how they will be repaid. 

A good business plan shows you have evaluated all aspects of the business. The more you understand the development and opportunities areas in your business, the more confident a lender will be to give you funding.

Get Your Franchise Funded Today

It’s never easy to start a franchise and one of the biggest obstacles for most people is not having enough start-up franchise funding. But with a little bit of preparation and patience, you can start your dream business with one of these financing options.

Contact us for more information on how to finance and start your own business franchise.