The Best Franchise Financing Options Explained
The table above highlights the best loans currently available on the market for franchise businesses. Now we will go into more detail about each loan provider.
SmartBiz is a great option for those who would like to apply for an SBA loan. SmartBiz boasts a simplified SBA application process in relation to its loan marketplace. SmartBiz is similar to Lendio. It will pass your one application on to various lenders, and provide you with the best match. SmartBiz also deals only with SBA loans. This means the application process can be tougher, but it also indicates that you can get very competitive rates.
- Generally inexpensive rates
- Great terms and fees
- Different customer support channels
- Additional fees can be charged
- The application process is complex and slow
SmartBiz is the top choice for SBA 7(a) small business loans online. It provides online SBA loans of up to $5 million for purchases of commercial real estate, loans of up to $350,000 for business capital and debt refinancing, and bank term loans of up to $500,000. However, this lender is only relevant to establish franchises. You will have to prove at least two years in business, and good personal credit and cash flow.
Our verdict: SmartBiz is best for business owners looking to apply for SBA loans. If your business is eligible for an SBA loan, SmartBiz will speed up your application process. Read the full SmartBiz review for more details.
If you are considering taking out various term loans over the next couple of years, then it is worth taking a look at OnDeck. This lender provides great features like lower rates and reduced fees to loyal customers. This means if you are a repeat customer you could get a better deal. Yet, OnDeck does have more application requirements than some of the other lenders mentioned on this page.
- Qualifications needed to borrow are lower than with banks
- Repeat customers enjoy lower costs
- Fast and simple application process
- Funds are given out quickly
- Financing isn’t an option in certain states
- Rates can be high
Short-term loans, including those provided by OnDeck, tend to have higher rates and fees, in comparison to longer-term loans. APRs begin at 19.9% for LOCs and 9% in relation to term loans. If you have just started your franchise business or have a poor to fair credit score, your rate could be greater than this. Minimum requirements are 12 months in business, annual revenue of $100K, and a minimum credit score of 600.
Our verdict: OnDeck is one of a handful of reputable sources for short-term, unsecured business loans for franchise business owners. They are also one of the fastest loan providers and are great for repeat borrowing. Read the full OnDeck review for more details.
Funding Circle is a peer-to-peer (P2P) lender. In this way, it connects you with investors and doesn’t directly lend to you. This likely won’t make much difference to you as an entrepreneur. You will still go through the same application process to get funding and make monthly payments via Funding Circle.
- Up-front fee information and cost information
- Reasonable starting rates
- Great customer service
- Secured loans only
- Borrower preferences are exclusive
Generally, Funding Circle’s P2P model indicates that it provides top rates on term loans, if you are eligible.
Funding Circle has some of the toughest application eligibility requirements, yet it boasts some of the lowest rates. Also, Funding Circle is one of the few loan providers that allows you to make payments monthly (rather than weekly or daily). This makes Funding Circle a great option.
Our verdict: Funding Circle is a top choice for term loans. Read the full Funding Circle review for more details.
Bad credit tends to stand in the way of getting the financing you need for your franchise. But it doesn’t have to be a major obstacle. Lenders such as Credibly can provide a solid option for business owners who haven't been able to receive funding from other sources because of their credit.
- Minimum credit score requirements
- Discounts for paying back early
- Fast and simple application process
- Rates tend to be expensive
- There are some additional fees
- A blanket lien is needed
Credibly provides a variety of short-term loans, medium-term loans, and merchant cash advances. You are able to borrow as much as $400,000 with the merchant cash advances or short-term loans. You can also receive up to $200,000 for medium-term loans. Flat rates begin at 15% for the short-term and advances. On the other hand, medium-term loans incur an interest rate of 10% - 36%.
To be eligible for the shorter-term products, you must have a credit score of 500 or more, have been in business for at least 6 months, and have revenue of $15,000 per month. In relation to the medium-term loans, you will need a credit score of more than 600 and will have had to have been in business for more than three years.
Our verdict: Credibly is a top choice for merchant cash advances and short- medium-term loans, for those with bad credit. Read the full Credibly review for more details.
BlueVine has two possible funding sources available: invoice factoring and line of credit. Both of these provide solid funding options, however, BlueVine’s invoice factoring is what puts it above the competition. As well as having an easy application process, Blue Vine provides invoice financing of up to $5 million.
- Easy and fast process
- Low credit score requirement
- Large loans can be given
- In some states there is limited availability
- The fees can be large
With invoice financing, your invoices provide the collateral for your loan. This makes it an easier type of loan to apply for, in comparison to other loan types on the market. BlueVine has relatively easy application requirements. They require just three months in business, a credit score of 530 or more, and only $120,000 in annual revenue.
Our verdict: BlueVine is a top choice if you require larger cash flow loans. Read the full BlueVine review for more details.
What is Franchise Financing?
A franchise is a joint venture between a franchisor and several franchisees. The franchisor is an original, successful business that sells the right to use its name, ideas, and products. The franchisees buy this right to trade under an existing business model.
Franchise financing is a term given to the process of securing a loan for getting your franchise business started. More prominent brands assist these individual stores with trade secrets, marketing, business plans, and other resources to help them succeed.
While franchises are an excellent way to ensure that you have a solid business plan in place, buying into these businesses can be expensive.