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5 Best Franchise Financing Options for Your Business

Franchise finance sources include banks, SBA lenders, online lenders and franchisors, among other options.
Written by Randa Kriss
Edited by Sally Lauckner
Last updated on August 31, 2022

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Startup costs for a franchise can range anywhere from $20,000 to $1 million — depending on the brand and real estate requirements — according to the International Franchise Association.
Thankfully, there are a variety of sources available that offer franchise financing, including banks, SBA lenders, online lenders, franchisors, and even friends and family. You can use this financing to buy a franchise, purchase supplies and equipment, remodel your storefront and more.
Here are some of the best options for franchise loans, plus how to apply for funding.

How much do you need?

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We’ll start with a brief questionnaire to better understand the unique needs of your business.

Once we uncover your personalized matches, our team will consult you on the process moving forward.

Here are 5 franchise loan options

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Lender
Best for
Max loan amount
Min. credit score
Next steps

TAB Bank - Term loan

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Best for Franchise bank loans$200,000650

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SBA 7(a) loan

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Best for Franchise SBA loans$5,000,000650

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Funding Circle - Online term loan

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Best for Online loans for established franchises$500,000660

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Fundbox - Line of credit

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Best for Franchise startup loans$150,000600

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OnDeck - Online term loan

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Best for Franchise loans for bad credit$250,000625

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Here are 5 franchise loan options

Best for Franchise bank loans

TAB Bank

Max Amount

$200,000

Min. Credit Score

650

Best for Franchise SBA loans

U.S. Small Business Administration

Max Amount

$5,000,000

Min. Credit Score

650

Best for Online loans for established franchises

Funding Circle

Max Amount

$500,000

Min. Credit Score

660

Best for Franchise startup loans

Fundbox

Max Amount

$150,000

Min. Credit Score

600

Best for Franchise loans for bad credit

OnDeck

Max Amount

$250,000

Min. Credit Score

625

Our pick for

Franchise bank loans

TAB Bank offers business term loans up to $200,000 with terms from 12 to 60 months. These loans can be a good option for established franchises with strong credit — and can sometimes fund faster than an SBA loan.

TAB Bank - Term loan

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Max Loan Amount
$200,000
Min. credit score
650
Est. APR
8.99-35.99%
TAB Bank offers competitive interest rates for business owners with strong credit — and can sometimes fund faster than an SBA loan.

Our pick for

Franchise SBA loans

SBA 7(a) loans offer competitive interest rates and repayment terms, with loan amounts up to $5 million. Franchisees can use SBA 7(a) loans for a wide variety of purposes. To qualify, your franchise must be listed in the SBA Franchise Directory.

SBA 7(a) loan

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Max Loan Amount
$5,000,000
Min. credit score
650
Est. APR
9.25-11.75%
7(a) program participants include specialized lenders like Live Oak Bank and big-name traditional banks like Wells Fargo.
Lowest interest rate

Our pick for

Online loans for established franchises

Funding Circle offers business term loans of up to $500,000 with repayment terms of up to seven years. To qualify, you’ll need at least two years in business and a minimum credit score of 660. If approved, you can get franchise funding in as little as three days.

Funding Circle - Online term loan

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Max Loan Amount
$500,000
Min. credit score
660
Est. APR
10.64-31.85%
Funding Circle is an option for established businesses that are financing an expansion or refinancing debt.
May fund quickly

Our pick for

Franchise startup loans

Fundbox can provide business lines of credit to franchises that have been operating for at least six months. These lines of credit are available in amounts up to $150,000 and can be used for working capital, making payroll and purchasing inventory or supplies, among other purposes.

Fundbox - Line of credit

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Max Loan Amount
$150,000
Min. credit score
600
Est. APR
10.10-79.80%
Fundbox offers a business line of credit to fill a cash-flow gap, and qualifying is easier than with other lenders.
May fund quickly

Our pick for

Franchise loans for bad credit

You may be able to qualify for franchise financing from OnDeck with a minimum credit score of 625. OnDeck offers short-term loans up to $250,000 that can be well suited for one-time projects, such as marketing campaigns, inventory purchases, business renovations or other similar franchise expenses.

OnDeck - Online term loan

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Max Loan Amount
$250,000
Min. credit score
625
Est. APR
29.90-97.30%
OnDeck offers a fast term loan for small-business owners with less-than-stellar credit who want to expand.
May fund quickly

How Much Do You Need?

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What is franchise financing?

Franchise financing is a type of funding, often a small-business loan, that allows a franchisee to pay for expenses associated with buying, opening and running a franchise. You can use this financing to cover startup and day-to-day expenses without depleting your initial investment or personal savings.
However, note that franchisors typically require that prospective franchise owners meet minimum net worth and/or available capital criteria. Ace Hardware, for example, requires franchise applicants to have at least $250,000 in available cash and a minimum net worth of $400,000.

Franchise financing options

Conventional bank loans

Banks and credit unions can offer a wide variety of loan options for franchise businesses. These loans will likely have the most competitive interest rates and repayment terms, but require strict criteria to qualify.
You’ll typically need excellent credit, strong finances and several years in business to get a franchise loan from a bank or credit union. You may also need to put up collateral to secure your financing.

SBA loans

SBA loans are issued by participating lenders, generally banks and credit unions, and partially guaranteed by the U.S. Small Business Administration. SBA 7(a) loans and SBA CDC/504 loans can both be used for franchise financing.
SBA 7(a) loans can be used for a range of purposes, whereas SBA CDC/504 loans must be used for large fixed-asset purchases. However, both of these SBA loans have long repayment terms and competitive interest rates.
To qualify for an SBA franchise loan, you’ll usually need good credit, multiple years in business and solid finances. Your franchise will also need to be listed in the SBA Franchise Directory to be eligible for funding.

Online loans

If you can’t qualify for a bank or SBA loan — or need faster funding — online loans can be a good alternative to finance your franchise.
Online lenders generally have more flexible requirements than traditional lenders and can often fund applications within a few business days. These lenders may also be willing to work with startup franchises or business owners with bad credit.
Online lenders can provide different types of funding, including term loans, lines of credit and equipment financing. Some companies, like ApplePie Capital, even specialize in franchise financing.
Compared to banks and SBA loans, however, online loans will typically have shorter repayment terms and higher interest rates.

Franchisor financing

Some franchisors provide different forms of franchise financing. Franchisors may offer discounted or waived fees, direct financing or they might partner with third-party lenders to help franchisees get loans.
For example, the UPS Store works with Guidant Financial to assist its new franchisees with accessing capital. The company also waives the franchise fee for qualified veterans — and it offers a discount on the franchise fee for first-time minority-owned businesses.
However, not all franchisors provide funding, and available options will vary by brand. You can check a franchisor’s website to see if it offers financing for franchisees or reach out to the company directly for more information.

Personal resources

You may use several different types of franchise financing to get your business started. Some franchisees also turn to their personal assets and networks to fund their franchise:
  • Rollovers as Business Startups, or ROBS. Some franchisees use a ROBS, which involves withdrawing money from your 401(k) or other retirement account — often with the help of a lawyer or ROBS provider — to invest in your new business. ROBS can be risky and may require substantial fees, so you’ll want to think carefully before choosing this option.
  • Friends and family. If you have a friend or family member who has the means to invest in your business, you might ask for a loan to help get your franchise off the ground. Provided someone is willing to offer you a loan, you should draft up a loan document that specifies the details and terms of the financing in order to separate your personal relationship from your business deal.

How to get a franchise loan

To get a loan for your franchise, you can follow these steps:

1. Decide which type of financing you need

You’ll want to decide what type of business loan you need, how much capital you need and how much debt you can afford. If you’re just starting your franchise, you might look at franchisor financing or online loans.
More established franchises will likely have a wider variety of funding options, including bank or SBA loans.

2. Check your business’s qualifications

Most lenders will use your personal credit score, time in business and annual revenue to evaluate your business loan application. They may also consider your cash flow, financial accounts, available collateral and franchise brand.
You’ll want to review your credit reports and financial statements ahead of time so you know where your business stands.

3. Research and compare lenders

Once you have an understanding of your financing needs and your business’s qualifications, you can focus your lender search accordingly. If you have good credit and an established financial history, but need fast financing, for example, you might start researching online lenders like Funding Circle or Credibility Capital.
You’ll want to research and compare multiple lenders to find the best fit for your business.

4. Submit your application

Your franchise loan application will vary largely depending on the lender and type of financing you choose. Bank and SBA lenders will likely have slower processes with document-heavy applications. You may have to visit a branch location to submit an application in person.
Online lenders, on the other hand, tend to have streamlined applications with minimal documentation.
Generally, however, you’ll need to provide:
  • Basic information about you and your business.
  • Details about your franchise, such as your franchise agreement.
  • Personal and business bank statements.
  • Personal and business tax returns.
  • Business financial statements.
  • Collateral information, if required.
If you’re looking to buy real estate or equipment, you’ll also need to provide information and a valuation of the property or machinery you plan on purchasing.
Once you’ve submitted your application, the time to funding will depend on your lender and type of loan. Some online lenders can fund applications within 24 hours, whereas SBA loans can take anywhere from 30 days to a few months to fund.

Find the right business loan

The best business loan is generally the one with the lowest rates and most ideal terms. But other factors — like time to fund and your business’s qualifications — can help determine which option you should choose. NerdWallet recommends comparing small-business loans to find the right fit for your business.
Last updated on August 31, 2022

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