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The 5 Best Ways To Get The Financing You Need To Start Or Grow Your Franchise

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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.

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SBA loans for franchises

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Franchise loans for fair credit

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Loans for established franchisees

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Startup-friendly franchise loans

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Loans for all types of franchisees

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Read more below to learn why we chose these options.

Best Franchise Loans For Businesses & Startups

The best loans for franchises 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

SmartBiz



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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, 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 3.75% 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.

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2. OnDeck

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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 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 31% for LOCs and 35.1% for term loans. If you have a newer franchise and/or poor to fair credit (minimum requirements are 12 months in business, 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.

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3. Fundation

Fundation



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Fundation is another high-quality online lender that provides capital to franchise businesses. Fundation has some of the lowest rates and fees you can find outside of a bank or credit union. It also has the advantage of speed, offering up to $500,000 deposited in your account within a week of applying. However, its borrower requirements are more stringent than some online lenders’, as you’ll need good credit (660+), a year in business, $100K in annual revenue, and three full-time employees. For loans above $200K, the qualifications are even stricter.

Fundation offers an 18-month line of credit up to $150,000, in addition to its medium-term installment loans. The time from application to funding generally takes between two to seven days. All in all, Fundation is a smart choice for established businesses that don’t want to wait for months to get a franchise loan approval.

Read more about the types of business loans offered by Fundation: installment loans (also called term loans) and lines of credit.

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4. ApplePie Capital

ApplePie Capital



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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.

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5. Funding Circle

Funding Circle



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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.

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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.

You can apply to different business loans individually or use a loan aggregation service, such as SmartBiz (described earlier in this post), Lendio, or Fundera.

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:

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

How do you get a small business loan for a franchise?

First, find out if your franchisor offers in-house franchisor financing. You should be able to find this information in the franchise disclosure document (FDD). If you want to look into other franchise financing options, research which lenders offer loans to your type of franchise. After that, you can narrow down the list of lenders based on which ones you qualify for. Be sure to check lenders’ reviews as well.

Once you’re ready to apply, most online lenders will allow you to get pre-approved quickly with a simple online application. After that, they’ll reach out to you for more information that they’ll need during the final approval and underwriting process.

Early on in the application process, it’s a good idea to start putting together the business documents lenders will ask for during the underwriting process. These include your business plan, franchise agreement, last three months of bank statements, last three years of tax returns, proof of business registration, and relevant business permits and licenses, to name a few.

Do I need to put down money to get franchise financing?

Some types of franchise financing require a business loan down payment, while others do not. Generally, larger business loans, including SBA loans, bank loans, and commercial real estate loans to purchase or build a franchise do require a down payment of approximately 10% to 30%. Online lenders, which typically offer smaller loans that max out at $250-$500K, often do not require any down payment; however, they usually require a UCC blanket lien on your business assets, as well as a personal guarantee.

Short-term lenders may also charge something called an origination fee, which is money deducted from the principal of the loan. For example, if you take out a $100,000 loan with a 4% origination fee, the lender will deduct $4,000 from your loan proceeds.

Can I get franchise financing if I have bad credit?

Yes, but you will only be eligible for certain loans. For example, you won’t be able to get an SBA loan—they require a credit score of at least 640. There are loans for businesses with bad credit, but they typically charge higher interest rates than lenders that require good credit. Bad credit franchise loan options are usually limited to small, short-term loans, and merchant cash advances. However, if you just need a quick cash infusion to serve as working capital for your established franchise, a short-term loan may fit your needs just fine.

New franchisees with bad credit will likely have a better chance of obtaining financing from their franchisor versus an outside lender.

Final Thoughts

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.

In Summary: Best Franchise Loans For Businesses & Startups

  1. SmartBiz: SBA loans for franchises
  2. OnDeck: Franchise loans for fair credit
  3. Fundation: Loans for established franchisees
  4. ApplePie Capital: Startup-friendly franchise loans
  5. Funding Circle: Loans for all types of franchisees
Shannon Vissers

Shannon Vissers

Shannon is a writer and editor based in San Diego, CA. Shannon attended San Diego State University, graduating in 2005 with a BA in English. She is the former editor-in-chief of SteelOrbis, an online trade publication. Shannon has also published articles for LIVESTRONG.COM, eHow, Life'd, and other websites. She has been with Merchant Maverick since 2015, writing about POS software, small business loans, and financing for women entrepreneurs.
Shannon Vissers
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2 Comments

Responses are not provided or commissioned by the vendor or bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the vendor or bank advertiser. It is not the vendor or bank advertiser's responsibility to ensure all posts and/or questions are answered.

    Rose

    Before applying for a new equipment loan through one of Merchant Maverick’s recommended lenders – Not so much a review/comment as a question: Our current business mortgage was made to my corporation several years ago, not to me personally. Should that mortgage still appear on my personal credit reports?

    Thank you,

      This comment refers to an earlier version of this post and may be outdated.

      Shannon Vissers

      Hi Rose, generally a business loan or mortgage will not appear on your personal credit report unless you signed a personal guaranty; if you personally guaranteed the loan, there is a chance it may appear on your personal credit report — but then again, it might not. It’s a good idea to check your credit report for any issues before you apply to any loans.

        This comment refers to an earlier version of this post and may be outdated.

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