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Best Franchise Financing: Find and Compare Options

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Franchise financing options include traditional loans, SBA loans and online lenders. Compare these options for your small business.

Opening a franchise gives you the entrepreneur experience — but, as a franchisee, you have an edge.

When you open a franchise storefront, the parent company, or franchisor, sells you the right to its business name, product and brand. The franchisee agreement lasts for a certain length of time, up to two decades, but you can usually renew.

What do you get out of this arrangement? You’re starting a company with an established brand and proven business model. The downsides: You give up control of business decisions to the franchisor, including site approval, design standards and product variation. You also have to foot the startup costs, so finding the best small-business loan or other financing is crucial.

We've outlined the costs of funding a franchise and some good sources of financing, depending on your personal credit, whether you’re just starting out or funding growth.

Easily get real, personalized small business loan rates to compare — not just ranges or estimates.

It’s free and won’t affect your credit.

Get Started

on Fundera's website

Our pick for

Businesses one year old or older

As a newer franchise, you’ll want to make sure you have money to cover the basics, such as emergency funding and inventory. OnDeck and StreetShares both offer financing to businesses at least a year old.

OnDeck - Online term loan

OnDeck - Online term loan

Est. APR

9.00 - 99.00%

Min. Credit Score

600

Pros

  • Cash can be available within the same business day.
  • Requires low minimum credit score.
  • Less paperwork than most lenders.

Cons

  • Fixed-fee structure means early repayment will not save interest.
  • Requires frequent (daily or weekly) repayments.
  • Requires business lien and personal guarantee.

Qualifications

  • Minimum credit score: 600.
  • Minimum time in business: 3 years.
  • Minimum annual revenue: $250,000.
  • No bankruptcies in the past 2 years.
Read full review
OnDeck offers a fast term loan for small-business owners with less-than-stellar credit who want to expand.

Our picks for

Established franchises

Even after you’ve cemented your place in the franchise world, you’ll still likely need access to funding, especially if you want to open another location. SmartBiz and Funding Circle offer financing to companies that have been in business at least two years.

SmartBiz - SBA loan

SmartBiz - SBA loan

Est. APR

6.73 - 10.29%

Min. Credit Score

650

Pros

  • Competitive rates among online lenders.
  • Faster than getting an SBA loan from a bank.

Cons

  • Must have strong financials, supported by personal and business tax returns for the past 3 years.
  • Stringent rules on use of proceeds.
  • Requires business lien and personal guarantee.

Qualifications

  • Minimum credit score: 650.
  • Minimum time in business: 2 years.
  • Minimum annual revenue: $50,000.
  • No bankruptcies or foreclosures in the past 3 years.
Read full review
SmartBiz’s low-cost SBA loans work best for established businesses that want to finance an expansion or refinance debt.
Funding Circle - Online term loan

Funding Circle - Online term loan

Est. APR

12.18 - 36.00%

Min. Credit Score

660

Pros

  • Cash can be available within 3 business days.
  • Competitive rates among online lenders.
  • No minimum revenue requirement.

Cons

  • Requires business lien and personal guarantee.

Qualifications

  • Minimum credit score: 660.
  • Minimum time in business: 2 years.
  • Minimum annual revenue: None.
  • No bankruptices in the past 7 years.
Read full review
Funding Circle is an option for established businesses that are financing an expansion or refinancing debt.

Easily get real, personalized small business loan rates to compare — not just ranges or estimates.

It’s free and won’t affect your credit.

Get Started

on Fundera's website

Summary of Best Franchise Financing: Find and Compare Options

Costs of opening a franchise

Starting a franchise requires many of the same expenses as starting any other brick-and-mortar business, including real estate, equipment and inventory. Franchisees, however, have to pay some unique costs in exchange for training, operating guidelines and marketing from the parent company.

Franchise fee: Most companies charge an upfront fee to start a franchise, paid in a lump sum or installments. The amount varies by company, but it’s typically tens of thousands of dollars and usually is not refundable once a franchisee is accepted. For example, Jamba Juice charges $25,000 per store, and Hilton Worldwide charges $75,000 to start a 150-room Hilton Garden Inn.

Royalty and advertising fees: Many franchisors also collect recurring royalty and marketing fees, typically a percentage of a franchisee’s sales. These percentages vary by company. For example, Subway franchise owners pay 8% a week in royalties and 4.5% a week for advertising, taken from the store’s gross sales minus sales taxes.

For specific companies’ franchise fees, refer to the Franchise Disclosure Document, which the Federal Trade Commission requires parent companies give to prospective franchisees. This file also includes information about the franchisor’s financial performance, franchisees’ obligations to the franchisor and financing options available.

Where to find financing to open a franchise

As with other small businesses, finding financing for a new franchise can be one of the biggest challenges owners face. Some financing options are unique to franchises, such as franchisor discounts on fees and online financing companies that cater to franchises. General business financing options such as small-business loans and Small Business Administration loans are also available to franchisees.

The franchisor: Some franchisors help finance new franchises by waiving fees or partnering with lenders to help franchisees get loans. If a company offers funding, it’s usually listed on its website and in Section 10 of the Franchise Disclosure Document. Compare the terms of the franchisor’s financing with other options to find the best source of funding.

Franchise financing company: Several companies specialize in franchise funding by matching borrowers with lenders or lending directly. Examples include BoeFly, which has helped Dunkin’ Donuts and Great Clips franchisees get funding, and Franchise America Finance, which funds franchises including Corner Bakery Cafe and FastSigns.

Traditional loan: Banks and credit unions are a source of financing for all businesses, including franchises. New franchise owners are 15% more likely than other new business owners to use a commercial bank loan, according to the SBA. Lenders are more likely to finance franchises of an established brand that has proved successful in a variety of markets. However, you’ll still be subject to the bank’s underwriting standards and lending policies, meaning it will review your net worth and credit history. You also may need to put up collateral, regardless of the brand you’re associated with.

SBA loan: The SBA guarantees several loan products that banks, credit unions and other lenders issue, including 7(a) loans, the most general and commonly used loan type. Franchisees and other small-business owners can apply for SBA loans through their lender.

Compare small-business loans

NerdWallet has an aggregated list of small-business loans you can use to compare loans match to your needs and goals. We gauged factors including lender trustworthiness, market scope and customer experience, and arranged the lenders by categories that include your revenue and how long you’ve been in business.

Last updated on November 21, 2019

To recap our selections...

NerdWallet's Best Franchise Financing: Find and Compare Options