The 5 Best Ways To Get The Financing You Need To Start Or Grow Your Franchise
Opening a franchise can be a smart choice for an aspiring entrepreneur. Becoming a franchise owner gives you the flexibility of owning a business with the added security of being part of an established brand. However, as with owning any new business, startup costs can be high, and you may require infusions of capital if you encounter hard times. Franchisees must also pay a franchise fee when opening a new franchise as well as ongoing royalty fees. You truly need a good business plan, healthy cash flow, and solid franchise financing to succeed.
Assuming you don’t have upwards of $100,000 set aside, how can you get the capital you need to open a franchise, purchase an existing franchise, or keep your franchise business functioning optimally?
Most franchisees will have to get a business loan at some point. Fortunately, compared to independent small business owners, franchisees have traditionally had an easier time securing financing from banks — including loans backed by the SBA (Small Business Administration). But bank loans and SBA loans are still not easy to get even for franchise businesses, and the application and approval process can be prohibitively long for a lot of franchisees in need of quick capital. Some franchisors offer financing programs, but the practice is far from widespread, so you can’t necessarily depend on funding from your franchise brand.
For these reasons, many franchise owners are turning to the alternative lending space for better financing options. Online lenders are generally more lenient in their borrower requirements. They also offer a much faster time to funding than traditional bank loans, often depositing funds in your account within a week of receiving your application.
What follows are some of the best online loans for franchise businesses. Note that the order in which I’m presenting these lenders does not reflect their ranking; they’re all pretty great. The best choice for you will depend on your business’s particular requirements.
Read more below to learn why we chose these options.
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Best Franchise Loans For Businesses & Startups
The best loans for franchise financing can help you open a new franchise, buy an existing franchise, or secure working capital for your franchise. Franchise financing includes SBA loans, term loans, lines of credit, and more. The following loans are faster than a bank loan, and you can apply entirely online.
1. SmartBiz: SBA Loans For Franchises
SmartBiz is a viable online loan option for franchise owners who want the security and low-interest rates of an SBA-backed loan but with the ease and speed of an online loan. SmartBiz is the number one marketplace for SBA 7(a) small business loans online. It offers online SBA loans up to $5 million for commercial real estate purchases, loans up to $350,000 for debt refinancing and business capital, and bank term loans up to $500,000. This lender is only an option for established franchises. You’ll need at least two years in business, a positive cash flow, and good personal credit.
SmartBiz does not originate loans. Rather, it is a service that matches business owners with SBA-preferred banks. If you don’t qualify for an SBA loan, SmartBiz can match you with one of its non-SBA partners to secure a loan. While SBA loans have the lowest interest rates and longest repayment terms–Prime Rate plus 1.5% to 2.75% with a term of up to 10 years for most loans–you might still be able to get a medium-term non-SBA loan with an interest rate as low as 7.99% through SmartBiz.
We love this lender for its sterling reputation, excellent customer support, and reasonable terms and rates. But again, you’ll need to have an already established franchise to qualify. This loan also takes longer to apply for (and receive) compared to most other online franchise loans, and it can potentially take a couple of months for the money to come through. You’ll need to submit the same documentation as you would for a traditional SBA loan. It will also be helpful if your franchise is already listed in the SBA Franchise Directory. Even though there are a few more hoops to jump through than with other online lenders, SmartBiz is still one of the quickest ways for a franchisee to get an SBA loan.
- Rates tend to be inexpensive
- Excellent terms and fees
- Multiple avenues of customer support
- Some additional fees are charged
- The application process is slow and involved
2. OnDeck: Franchise Loans For Borrowers With Fair Credit
If you have a newer franchise or need capital ASAP, OnDeck is one of the easiest and quickest ways to get a short-term loan up to $250K or a line of credit up to $100K. Though OnDeck isn’t specifically geared toward franchise owners, it’s a viable online loan option for any type of small business owner who doesn’t qualify for a bank loan or doesn’t want to wait months to receive loan funds. OnDeck has also partnered with the Franchise Council of Australia to serve the global franchise market better. (Fun fact: Australia has more franchise outlets per capita than America.)
OnDeck’s borrower requirements are much more relaxed than those for a bank or SBA loan, and time-to-funding is super speedy. The entire process from starting your application to receiving your funds usually only takes a couple of days.
Short-term loans, such as the ones offered by OnDeck, have higher rates and fees compared to longer-term loans. APRs start at 19.9% for LOCs and 9% for term loans. If you have a newer franchise and/or poor to fair credit (minimum requirements are 12 months in business, a credit score of 600, and annual revenue of $100K), your rate will likely be higher than that. Nevertheless, OnDeck is one of the few reputable sources of short-term, unsecured business loans offered to franchise owners and also one of the fastest.
- Borrower qualifications are lower than with banks
- Lower costs for repeat customers
- Application process is fast and easy.
- Funds are disbursed quickly
- Financing isn’t available in some states
- Rates can be expensive
3. Credibly: Franchise Loans For Borrowers With Bad Credit
Bad credit is often a major obstacle to getting the franchise financing you need, but it doesn’t need to be an impassable roadblock. Lenders like Credibly can be a good fall-back option for borrowers who have found themselves cut off from other sources due to their credit.
Credibly offers a mix of short-term loans, medium-term loans, and merchant cash advances. You can borrow up to $400,000 with the merchant cash advance or short term loan, or up to $200,000 for the medium-term loan. Flat rates start at 15% for the advances and short-term loans, while the medium-term loans have an interest rate between 10% and 36%.
To qualify for the shorter term products, you’ll need to have a revenue of $15,000 per month, a credit score of 500+, and have been in business for 6 months. For the medium-term loan, you’ll need to also have a credit score of 600+ and have been in business for three years.
- Low credit score requirements
- Discounts for repaying early
- Application process is fast and easy
- Rates can be expensive
- Some additional fees charged
- A blanket lien is required
4. ApplePie Capital: Loans For Starting A Franchise
ApplePie Capital is an online lender that specializes in franchise financing. Founded in 2014, ApplePie was one of the first online lenders to offer franchise financing. ApplePie offers loans starting at $100K for both new and existing franchises, including franchise startup loans, loans to purchase an existing franchise, franchise equipment loans, franchise refinancing loans, and more.
ApplePie currently has partnerships with over 40 franchises, including brands such as 7-Eleven, Dunkin’ Donuts, Jimmy John’s Pizza, and Wetzel’s Pretzels. Other franchise brands can get loans through ApplePie, though the process might take a little longer.
Some things we like about ApplePie Capital include its reasonable interest rates, relaxed borrower qualifications, and easy application. ApplePie will approve loans even to brand-new, first-time franchise operators, and while they don’t list specific borrower qualifications on your website, the main requirement is that you work with one of their partnered franchises.
ApplePie offers both SBA loans and conventional loans with a five to ten year repayment period at fixed or variable interest rates, depending on the loan product. Read our post on SBA franchise loans to learn more about SBA-backed franchise loan options.
- Multiple types of financing available
- High borrowing amounts
- Long-term financing options available
- Franchise financing specialist
- Application process can be slow
5. Funding Circle: Loans For Restaurant Franchises (And More)
Funding Circle was established in 2010 when one of its founders started a gym franchise and realized how difficult it was to obtain funding. Today, Funding Circle has numerous franchise partners across the US, including Papa John’s, Pinkberry, Quiznos, and many others. This lender is also very flexible, offering various loan products through partnered lenders for franchises in different stages of growth. For qualified applicants, Funding Circle has the advantage of offering faster funding than a bank loan would, as well as having relatively low rates and fees.
Funding Circle offers various business lending products, including medium-term installment loans with repayment periods as long as five years, which are ideal for established business owners with a strong credit history. Funding Circle also issues online SBA loans. For Funding Circle’s standard term loans and lines of credit, you’ll need to be a franchisee with a business that’s at least two years old and have a credit score of at least 660. However, Funding Circle also offers merchant cash advances, short-term working capital loans, and invoice financing, which have higher rates, but more lenient requirements. For example, for an MCA, you’ll only need six months in business and a credit score of 500.
While Funding Circle’s application process takes a little longer than that of some other online lenders, it is still much quicker and easier than getting a bank loan. Funding Circle loans aren’t suitable for aspiring franchisees who haven’t opened up shop yet, but it should definitely be on your shortlist if you have an existing franchise.
Note that Funding Circle only offers to finance up to $500,000, so if you need more capital than that, you’ll have to look elsewhere. Then again, there are plenty of low-cost franchises you can purchase for under $100,000.
- Monthly repayments
- No prepayment penalty
- Few additional fees
- Customer service is helpful
- Borrower qualifications might be hard to meet
- Financing isn’t available in some states
How To Improve Your Chances Of Being Approved For Franchise Financing
Getting approved for franchise financing can be difficult, particularly if you need startup funds, you have bad credit, or your franchise has been open for less than a year. However, there are a few things you can do to improve your chances of being approved for financing.
1. Consider Franchisor Financing
Depending on where you are in the franchise process, you may or may not know that many franchises offer an in-house financing option to pay for the franchise fee, equipment, and other startup costs.
As a first-time franchise owner, in-house franchisor financing may be your best bet, if your franchisor offers such an option. If you meet the requirements for other loans, be sure to compare the lending rates your franchisor offers you and those of outside lenders to make sure you get the best deal you qualify for.
2. Write A Strong Business Plan
Even as a franchisee of an established franchise brand, you still need to have a plan because no two franchises are the same. Having a solid business plan in place shows potential lenders that you know what it takes to run a successful business and will improve the likelihood that your application will be approved.
Having a plan is essential not just for your loan application package but also to inform your decisions as a business owner. Among other pieces of information about your business, the plan should include a detailed overview of the franchise’s financial situation, including how much money you need and what you will do with it. For some online loans, you might only need a one-page business plan; you will likely need a more detailed plan for a bank or SBA loan.
Learn more loan application tips to improve your business loan application.
3. Apply To More Than One Lender
Keep in mind that whenever you’re applying for a business loan, whether it’s for startup costs, working capital, or real estate, it’s a good idea to complete more than one loan application, so you can compare rates and terms. This way, you can be sure that you get the best-priced loan that you qualify for.
Applying to multiple lenders also improves the chances that at least one lender will accept you. Most lenders will only do a “soft” pull on your credit in the pre-qualification stage. They will not do a hard pull (the kind that dings your credit score) unless you accept the loan offer.
4. Look Into Alternative Financing
If you don’t qualify for traditional business financing, you can look into alternative financing that you are more likely to be approved for. For example, you might consider:
- An online personal loan
- A home equity loan or line of credit
- A Rollovers As Business Startups (ROBS) plan
- Business crowdfunding
You may also consider forming a business partnership if you can’t afford to buy a franchise on your own. Or you could borrow the funds you need from a friend or family member. For more ideas on how to become a franchise owner on a budget, read 7 Ways To Buy A Franchise When You’re Short On Funds.
Franchise Financing FAQs
Online business lenders represent an important part of the financing industry, as bank loans remain out of reach for many entrepreneurs. Franchise owners benefit from online franchise loans, which have less-strict borrower qualifications than traditional business or SBA loans and also put the funds in your account a lot faster. Generally, online loans have higher rates than bank loans. However, they can be crucial sources of capital to many small business owners, including franchise owners, who would not otherwise qualify for financing. Moreover, some of the best online lenders offer rates that are on par with big banks.
Finally, you must do your research before diving into any franchise brand. Read up on how franchises work, look at franchise opportunities on sites such as the International Franchise Association, and look for SBA-affiliated franchises in the SBA Franchise Directory. Read the franchise disclosure document carefully before signing a franchise agreement, and be sure you’re ready to commit to a relationship with the franchise brand of your choice. And if you want even more information on purchasing a franchise, read my step-by-step guide to buying a franchise. Happy applying and best of luck buying and growing your franchise!
Are you looking for software to help you run your franchise? We’ve written in detail about the best POS (point of sale) systems for franchises.