How To Buy A Franchise When You’re Short On Funds

Buying a franchise can be more affordable than starting from scratch, but upfront and ongoing costs still add up.

The good news is that several financing options can help make franchise ownership more accessible. Here are practical ways to fund a franchise — even if you don’t think you have the cash on hand.

How To Fund A Franchise

From retirement funds to government-backed loans, there are several ways to finance a franchise.

Franchisor Financing

Many franchisors offer financing or help connect franchisees with preferred lenders. Options vary by brand and may include in-house programs or assistance in securing SBA loans.

Qualification requirements differ, but most franchisors expect some upfront capital and acceptable credit.

SBA Loans

SBA loans offer low rates, long repayment terms, and high borrowing limits, making them a popular option for franchise financing. The SBA guarantees a portion of loans issued by banks and other lenders, which reduces lender risk and improves approval odds.

Common options include:

• SBA 7(a) loans: Up to $5 million, terms up to 25 years, flexible use of funds
• CDC/504 loans: Designed for real estate and equipment purchases, with lower down payments

While easier to qualify for than conventional loans, SBA loans involve strict requirements and a lengthy approval process.

Home Equity Loans & HELOCs

If you own a home, you may be able to use your equity to fund a franchise. Home equity loans provide a lump sum, while HELOCs offer flexible, revolving access to funds.

Rates are typically lower than unsecured loans, but your home is at risk if you default.

Rollovers As Business Startups (ROBS)

A ROBS allows you to use retirement funds to purchase a franchise without early withdrawal penalties. This isn’t a loan, so there’s no interest, credit check, or repayment schedule.

However, your retirement savings are at risk, and setup and maintenance fees apply.

Online Loans

Traditional business loans can be difficult to qualify for as a startup, but personal loans for business may be an option. These loans rely on your personal credit and income and can be used for franchise fees and startup costs.

Rates and limits vary widely based on creditworthiness.

As you grow your business and need more funding, make sure to check out the best small business loans for additional financing options.

Partnerships

Bringing on a partner can help cover startup costs, but it also means sharing ownership, decision-making, and profits. Formal agreements are essential to protect all parties and ensure compliance.

Low-Cost Franchises

Some franchises have significantly lower startup costs than major national brands. Others offer discounted franchise fees for women, minorities, or veterans. Choosing a lower-cost franchise can reduce financing needs and risk.

Final Thoughts On Funding Your Franchise

While franchising can be a faster path to business ownership, securing the right financing still takes planning. Fortunately, a range of funding options exists, from traditional loans to alternative strategies.

The key is to compare your options, understand the long-term costs, and choose financing that supports sustainable growth for your business.