5 Top Sources of Franchise Financing



If you are considering opening a franchise of a beloved chain, then it is likely that one of the biggest obstacles you are facing is determining how you will fund your business. There are several options available for franchise financing, and the best ones are outlined below.

Bank Loans

Bank loans are a common choice for new businesses, and they can be an especially smart decision for franchise owners. If your parent company has a good reputation, then it can be helpful to your case when the bank is deciding whether or not it will lend to you. As long as you can prove that you are financially responsible, you will probably have no problem acquiring a bank loan. One downside of bank loans is that the application process can be rather lengthy.

Franchise-Specific Lenders

Franchise-specific lenders are financial groups that deal exclusively with franchises. Because franchise financing is their main focus, the turnaround time for acquiring capital is often much shorter than it is when dealing with a bank. These groups can also offer expert guidance about running a franchise. In return for their expertise and fast dealing, these lenders often require higher payments or interest rates.

SBA Loan

The Small Business Administration 7(a) Loan Program makes it easier for small businesses to acquire financial backing from lenders. This program guarantees the lender that the federal government will make the payments if the business owner cannot. This motivates lenders to provide assistance. The SBA Loan is a particularly good option for franchise financing because SBA has a registry of approved franchise brands. If your franchise falls under one of these approved brands, then the process will move more quickly.

Government Programs

Aside from the SBA loan, there are several other government programs in place that offer grants or incentives to new business owners. The programs available to you may vary by state. Some offer incentives to minorities and women, while others are meant to assist veterans.

Your Company

Of course, you should always look to your franchise brand for support. Many franchise companies promote their businesses by offering franchise owners a boost during the difficult early stages of running the store. They may offer franchise financing themselves, or they may connect you with a lender with good interest rates. Other assistance may come in the form of discounts or help with specific items like equipment purchases. The specifics will vary by company, but it is definitely worth investigating.

Any of these choices could be a good fit for your situation depending on your needs and priorities. Be sure to research each one in greater depth in order to lay the best financial foundation for your company.