Starting your franchise is one of the best ways to become your own boss. Owning a franchise gives you the flexibility and freedom of being a small business owner, plus the advantages of a famous and established brand image. However, you’ll likely need a good amount of capital to get your successful franchise running and growing often including a hefty franchise fee, ongoing royalties, and periodic advertising and marketing fees.
Well not every aspiring entrepreneur has access to that much money. So, if you need a business loan to start a franchise, you might find it challenging and time-consuming to navigate the various options available.
In this blog post, I’ll break down the best franchise funding options for small business owners. Let’s explore some of the most common and popular options.
Franchisor Financing should be on the top of your list when financing your franchise. Many corporations offer customized business loans especially to their franchisees, either through in-house franchisor financing or partnerships with specific lenders. Depending on where you are in your franchise business’ cycle, these corporations with franchise business models offer loans for a variety of purposes such as franchise fees, equipment, and other startup costs.
The Small Business Administration doesn’t directly lend but works with banks and lenders to provide franchise loans to small business owners. To qualify for an SBA loan, the franchise you’re planning to purchase or fund must be approved by SBA and listed in the SBA franchise directory. The most sought-after business loan to start a franchise is the 7(a) and CDC/504 program. So, if you have a perfect credit score and solid business financials, you should absolutely apply for them. SBA 7(a) loans can range in amounts of up to $5 million while CDC/504 up to $20 million with terms from 10 to 25 years.
Online Alternative Lenders
If you don’t qualify for traditional business financing, alternative franchise financing can be one of the great options. Though SBA loans and other bank loans can offer favorable terms and rates of interest, they usually require an extensive application process and months to approve. Therefore, if you need capital immediately, or if your loan application is rejected by traditional banks, you should consider online alternative lenders to secure a business loan to start your franchise. These lenders may not offer you the best terms and rates, but they offer you shorter turnarounds, less stringent requirements, and a variety of products than their traditional counterparts.
Friends and Family
Last but not least, borrowing from your friends and family is another great way to finance your franchise. You can borrow money directly, ask for a gift, or bring a loved one on as your business partner. While you can successfully getting money in most cases, there are also chances of losing friendships and family disagreements.
Owning a franchise is a wonderful opportunity to try your hand at something as a small business owner. To smoothly run and grow your franchise, you must have sufficient funds in your business account. With these financing options at your disposal, you’ll be ready to take your franchise to the next level.