how to get loan for franchise business

How to get approved for a franchise business loan

• Have a business plan. Lenders are risk averse, and they don’t give loans without having extensive knowledge of what their funds will finance, so most lenders will want to understand your business. ...
• Work on your credit score. Your credit score matters a lot when you’re applying for a franchise business loan. ...
• Be prepared to make a down payment and/or pledge collateral. ...

Full Answer

Can I get a business loan for a franchise?

There are no minimum credit requirements. Franchises are an excellent option for those looking for a safe way to get a business up and running. Though you need to have some additional capital for franchises, it is definitely more reliable. Franchise loans can be provided by commercial banks or directly from franchises.

How to get financing to buy a franchise?

What is the Best Way to Buy a Franchise?

• 401 (k) Business Financing. Even better, ROBS allows you to finance your business without debt, early withdrawal fees or tax penalties.
• Small Business Administration Loan (SBA Loan) An SBA loan is a government-backed loan aimed at helping American entrepreneurs fund their businesses.
• Other Ways to Fund Your Franchise. ...

Should I buy a franchise or start my own business?

Buying a franchise is very different from starting a mom-and-pop business. Since there is an already established system in place, there is a higher likelihood of success. If you invest in a proven franchise opportunity and follow the system the franchisor has put in place, you should be on your way to running a successful business.

How to make your business into a franchise?

• Set Realistic Goals. Franchising is more of a marathon than a sprint. ...
• Research Your Competitors. ...
• Develop Your Franchise Offering for Both Individual and Multi-Unit Sales. ...
• Make Sure Your FDD Is Compliant for Every State. ...
• Learn Franchising and Get Involved in the Franchise Community. ...

How do you qualify for a franchise loan?

How Do You Qualify for Franchise Financing?Acceptable personal credit history. Your personal credit score reflects whether you are reliable as a borrower. ... Required down payment. Almost any kind of SBA or conventional business loan will require a down payment.Financial information. ... Franchise information.

Can you get a loan for a franchise business?

Franchisees can apply for a commercial loan with a bank of their choice. Approval usually requires a good credit rating and a detailed business plan. Because the federal government backs a portion of SBA loans, they generally have more favorable interest rates and repayment terms than commercial banks loans.

How hard is it to get a business loan for a franchise?

Getting approved for franchise financing can be difficult, particularly if you need startup funds, you need funding but have bad credit, or your franchise has been open for less than a year.

Is it possible to open a franchise with no money?

It's not possible to start a franchise without any money. You'll need to pay an initial franchise fee, and you will have other start-up costs. Furthermore, franchisors want to see that you have some skin in the game in the form of a down payment.

Can I buy a franchise with 100k?

Though some franchises might be out of your current budget, there are many great options that you can get up and running for under 100k. There are many types of franchises to choose from, and depending on your skills and interests, there is likely a franchise that will fit you best.

How much money is needed to start a franchise?

Franchise startup costs can be as low as $10,000 or as high as $5 million, with the majority falling somewhere between $100,000 and $300,000. The price all depends on the industry, location and type of franchise.

How much deposit do you need for a franchise?

Note: To get approved you must either have a minimum of 50% deposit or equity in a property that you own.

What credit score is needed for a franchise?

680 or higherSome franchise requirements to take into consideration may include: Credit score. Minimum credit scores vary by franchisor, but most consider a grade of 680 or higher as ideal.

What credit score is needed for a franchise?

680 or higherSome franchise requirements to take into consideration may include: Credit score. Minimum credit scores vary by franchisor, but most consider a grade of 680 or higher as ideal.

Can I use an SBA loan to buy a franchise?

SBA loans can be used toward a new or existing franchise. The 7(a) loan program offers funds for a variety of franchise uses, including capital for day-to-day expenses, initial franchise fees, and major purchases. The 504/CDC loan program can provide funds for a new franchisee to buy land or long-term equipment.

How much deposit do you need for a franchise?

Note: To get approved you must either have a minimum of 50% deposit or equity in a property that you own.

How much do you have to put down on a franchise?

Entrepreneurs looking to finance a franchise transfer typically need to put 20% down, while a new location or start-up business requires 25 – 30% down.

What are the costs of opening a franchise?

The costs of opening a franchise vary depending on the franchise and the requirements set forth under the franchise agreement but may range from $7...

Do franchises offer financing?

Franchises may offer several tools to help franchisees fund their new business ventures. In-house financing is offered by some companies, but it’s...

Is it hard to buy a franchise?

Buying a franchise can be difficult without access to the cash necessary to do so. High startup costs can be difficult to fund without strong perso...

Do I Qualify for Franchise Financing?

Qualifying for franchise financing often varies based on the form of funding you choose. For example, traditional bank loan requirements will not be the same as the requirements from alternative or online lenders. Although this is the case, some conditions remain the same regardless of the application process.

5 Ways to Get Financing for Franchisees

A franchise loan is a financing option that many new franchisees choose to take. If you find yourself needing to secure a franchise loan to dive into the industry, we’ve taken the liberty of simplifying the process for you. Startup costs can multiply quickly, and franchise loans ensure that you can keep up.

What Do I Need to Apply for Franchise Loans?

When applying for a franchise loan, lenders will want to get a clear picture of the franchisee’s financial profile. Be prepared to show them items such as your credit score, current net worth, and liquidity.

How Can I Improve My Chances of Being Approved For Franchise Financing?

When lenders consider franchisees as applicants, they look at how much risk you represent. If your current financial situation has decreased your chances of being approved for franchise funding, all hope is not lost.

What is franchise financing?

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.

What does it mean to be a franchise owner?

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 ...

How long does Applepie loan last?

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.

What is funding circle?

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.

What is a smartbiz loan?

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.

How long does it take to get a loan from Ondeck?

The entire process from starting your application to receiving your funds usually only takes a couple of days.

Why is it important to have a business plan?

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.

What is the best loan for franchise?

Therefore, you’ll find that overall, the best franchise loans are SBA loans or loans from alternative lenders. With either of these options, you’ll find convenient and accessible financing, that you can use to support a number of different purchases within your franchise business operations.

What is the next franchise finance solution?

The next franchise finance solution you’ll want to consider is an SBA 504/CDC loan.

What is the most popular SBA loan program?

To start, the SBA 7 (a) loan program is the most popular SBA loan program and a great option for franchise finance.

How long is a 504 loan?

SBA 504/CDC loans can range in amounts of up to $20 million, with terms from 10 to 25 years. In addition to their specific purpose, SBA 504 loans are also different from SBA 7 (a) loans in the way that they work. Whereas 7 (a) loans are provided by an SBA partner, most often a bank, there are three parties that contribute to 504 loans: a bank, a Certified Development Company (CDC), and the borrower.

How long is a funding circle loan?

Funding Circle offers medium-term loans in amounts from $25,000 to $500,000 with terms of six months to five years. Interest rates on Funding Circle loans start as low as 4.99% and can go up to 22.99%.

Can you finance franchise fees with SBA 7A?

This being said, however, it’s important to note that SBA 7 (a) loans cannot finance ongoing franchise or royal ty fees.

Does a franchisor offer funding?

Some franchisors offer straightforward business loans, some offer down-payment contributions, and some might offer reduced royalties or licensing fees if you open multiple branches.

Why is buying a franchise important?

Whether you are an aspiring business owner or already have a company, running a franchise can provide valuable experience and take your operations to a new level.

Who owns a franchise?

A franchise is owned by a franchisee. A parent company can have several franchises run by different people. Meanwhile, all chain stores are owned by the corporate office.

What is a Franchise?

A franchise is a business that involves an established business owner (franchisor) selling the rights to use the company name, trademark, and business model to an independent operator (franchisee). The franchisee pays the franchisor a one-time franchise fee and an ongoing percentage of sales revenue.

What is business format franchise?

Business format franchise — a franchisee operates a business under the franchisor’s brand.

What is a franchise turnkey?

Learning curve — many franchise options are turnkey, which means you get supplies, inventory, equipment, and training. Accordingly, you can spend less time learning how to run a business on your own.

What can franchises take advantage of?

Cost savings — as a franchise, you can take advantage of a collective buying power to purchase supplies and inventory.

Where does the funding for a new chain store come from?

A franchisor can rely on the franchisee to seek financing for its location’s expenses. Meanwhile, funding for each new chain store comes from the parent company.

Best SBA franchise loan options

Essentially, your best SBA franchise loan is one of two options (or a combination, more on that later): An SBA 7 (a) loan, or an SBA CDC/504 loan.

Funding a franchise with an SBA 7 (a) loan

As Smith notes, SBA 7 (a) loans often make the most sense for opening and running franchises, because you can use those funds for almost anything you need to get your franchise going. Here are the details.

Common uses for SBA franchise loans

We've told you all about your SBA franchise loan options, but we haven't talked about exactly what you'll need that money for.

Alternatives to an SBA franchise loan

You likely won’t find a franchise loan with a higher capital amount, longer term, or lower interest rate than an SBA franchise loan. But it takes time, patience and dedication to gather together your SBA loan application and wait for approval—it can take weeks, or even months, to complete the entire SBA loan process.

The bottom line

Clearly, you can’t secure an SBA franchise loan unless you're qualified for one. But if you are, your franchise will benefit from one of the most generous business loans you'll find anywhere.

How to determine if a franchise is eligible for financing?

Review the SBA franchise directoryon the SBA website to determine whether your franchise is eligible for financing. When SBA franchise lenders review your documents, they will also reference the directory to confirm your eligibility.

How to apply for SBA loan as a franchise owner?

The steps for applying for an SBA loanare similar to any other applicant with one exception: You must first verify your franchise brand is eligible for SBA financing. Confirm your franchise is eligible for SBA financing.

What to do if your brand is not listed in the franchise directory?

If a brand is not listed in the directory, consider asking the franchiser if they have plans to be listed. The directory is updated weekly and there are no application fees.

What happens if you fail to repay a loan?

Alternatively, you may need to secure the loan with collateral — if you fail to repay the loan, then the lender can exercise its right to seize the collateral to recoup its loss.

How long can a 7A loan be?

Terms for a 7(a) loan can extend up to 25 years but will vary depending on the franchisee’s intended use of the proceeds. Interest rates can be either fixed (up to 11.25%) or variable (up to 8%).

Can a franchise owner apply for SBA loans?

However, only business owners whose franchises are listed in the SBA franchise directory can apply. The listed franchises operate business models that meet the SBA’s eligibility criteria.

Do short term loans require weekly payments?

Also, repayment for short-term loans tends to follow a more frequent payment schedule, sometimes requiring weekly or even daily installments. Traditional bank loans. Like the SBA, traditional banks can offer various financing products in generous loan amounts that best suit your needs.