Franchise Financing

Best 5 Franchise Financing Options

Franchise owners need to pay a franchise fee and royalty payments when they establish their new business. Franchisees thus need a solid business approach, good cash flow, and reliable financing.

Financially Reviewed by Somer G. Anderson

At a glance  As a franchise owner you may have the freedom of owning your own business with the added advantage of being associated with an established entity. Nevertheless, as with creating any new business, establishment costs can be lofty, and you could need extra capital if you stumble upon difficult periods. This article explains various business loan types out there for prospective franchisees to consider and adopt.

The Best Franchise Financing Options Explained

1. Credibly - Best for Merchant Cash Advances

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

Features explained

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.

2. SmartBiz - Best for SBA Loans

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

Features explained

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.


3. OnDeck - Best for Unsecured Business Loans

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

Features explained

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.

4. Funding Circle - Best for Short-Term Loans

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

Features explained

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.

5. BlueVine - Best for Cash Flow Loans

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

Features explained 

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.

The Best Franchise Financing Options in 2022

The following table outlines the top options available for franchise financing. 

CompanyMax/Min LoanLoan RatesSpecial RequirementsGet a Loan


Credibly review

Merchant cash advance or short term loan: Up to $400k .

Medium term loan: up to $200k

Cash advance or short term loan: starts at 15% for

Medium term loans: between 10% and 36%

Short Term:

  • Revenue of $15,000 pm.
  • Credit score of 500+.
  • in business for 6 months.

Medium Term

  • Credit score 600+
  • In business for 3 years
Apply Now


Smartbiz review

Commercial Real Estate: Up to $5 Million

Business Capital: Up to $350,000

Bank Term Loans: Up to $500,000

Prime Rate plus: 1.5% to 2.75% for loans up to 10 years.

Medium term non-SBA loan: 7.99%

  • Established Franchise.
  • 2 years+ in Business.
  • Positive Cash Flow.
  • Good Personal Credit.
Apply Now


OnDeck review

Short Term loan: up to $250k.

Line of Credit: up to 100k.

Term loans: APRs start at 9%

Lines of Credit: 19.9%

  • 12 months in business.
  • credit score of 600.
  • annual revenue of $100K.
Apply Now

Funding Circle

Funding Circle review

Up to R500k 

Relatively low rates: Medium term loans, SBA loans, Standard term loans, Lines of credit.

Higher rates because of higher risk: Merchant cash advances, Short-term working capital loans, and Invoice financing

  • 2 years in business.
  • Credit score of 660
  • 6 months in business
  • Credit score of 500
Apply Now


BlueVine Review

Line of credit: Up to $250k for 6 or 12 months

Invoice factoring: up to $5 million

6 months: 0.3%-1.5% per week ()

12 months: 1.5%-6.5% per month

Invoice discount rate: 0.25%-1.7% per week 

Your credit score is a consideration, but BlueVine also looks at various other factors.Apply Now

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.

Recommended Reading: Best Business Acquisition Loans in 2022

Insights Into The World of Loans for Franchises

Start-up costs for owning a franchise can vary from thousands to a few million dollars for some of the more popular franchises. While many franchises will require a franchisee to have a substantial net worth, one can purchase a franchise for $50,000 or less.

The franchisor will charge an initial franchise fee or license fee. Also, there will be a royalty payable based on the franchised outlet's financial performance. Besides this fee and costs, you may be restricted to selling only the stock or goods supplied by the franchisor.

How Much Does It Cost to Start a Franchise?

Buying into a franchise can be costly. The following are the costs that you should expect.

  • Initial franchise fee: an initial fee is payable to the franchisor for the purchase of your business. 
  • Recurring franchise fees: these are often referred to as royalties, which are ongoing fees that you'll pay (usually monthly) to the franchisor as part of the original agreement. 
  • Marketing fees: the franchisor will most likely take care of the marketing for the brand as a whole.
  • Required purchases: franchisors may require that you purchase certain goods or services for use within your store. 
  • Build out costs: Once you have secured your franchise outlet, you will have to pay initial rental plus a deposit, start renovating your premises, shopfitting, and so on.
  • Hiring costs: there will be costs involved with the hiring and training of employees.
Recommended Reading: Best Small Business Loans and Grants for Minorities

Things to Know Before Taking Out Franchise Financing Loan

Franchise loans are available for franchisees, but it's essential that you come armed with the following before approaching franchise financing lenders or a franchise financing company itself.

  • Business and Personal BudgetsYou will need to budget for the usual business expenses such as rental for the business premises, stock, salaries and wages, insurance, and other overheads. Then you must cover your salary and set an amount aside for unforeseen expenses. Set your goal for breaking even in the first year.
  • Your Personal Net WorthNet worth refers to how much capital you can access to invest in your franchise and tells franchisors and those in the franchise financing business how well you have managed your money historically. 
  • Financing Options: Do your best to know more or less what your financing needs and options will be. We will discuss these options in the next section.
  • Time to Profitability: The franchisor and other franchisees in a chain should know how long it takes to become profitable. Speaking to them should give you a fair indication for inclusion in your forecasting.
  • Developing Relationships: One of the biggest causes of franchise failure is because would-be franchisees go into a business with their eyes closed. We suggest that you develop as close a relationship as possible with the franchisor and the bank or lender that will finance you.
Recommended Reading: Best Small Business Loans for Veterans

How to Get a Loan for a Franchise?

The following are five different types of small business loans for a franchise.

1. Bank Loans

You will probably find that a successful franchisor's bank will be open to financing franchise opportunities based on its franchise client's track record.

Banks, however, tend to require more substantial documentation and will look at the prospective owner's credit rating and any other business credit ratings more closely.

A bank also tends to require self-contribution from a prospective franchisee and consider any available collateral.

2. SBA Loans

Another possibility is raising a loan guaranteed by the Small Business Administration (SBA). These loans typically offer attractive rates and terms. You should note that the SBA itself does not make loans, though.

Instead, it partners with a financial institution that makes the loan; then, the SBA undertakes to repay a significant portion thereof in the event of default.

3. Retirement Funds

Should you have a 401(k) or 403(b) retirement account, you might be able to borrow against it to fund a business—including a franchise. 

There are many restrictions against using retirement funds for anything other than retirement, so be careful and seek a tax professional's guidance when considering this option.

4. Small Business Credit Card

Small business credit cards can be another road to take. They often provide high credit limits, which could make it possible to finance a low-cost franchise with a balance transfer—where the funds are deposited into your business bank account.

This carries its risks, of course, meaning that you could be looking at exorbitant interest rates on your outstanding balance. If handled properly, it could provide you with a good business credit rating further down the line. 

5. Franchisor Financing

Two weeks before you purchase a franchise, the franchisor must provide you with a Franchise Disclosure Document (FDD). This document should contain any information about whether the franchisor offers to finance or may finance through one of its established lending partners.

See Our Additional Guides on Business Loan Types

Final Thoughts 

Finding the right franchise financing option is essential to a successful franchise business. In this guide, our experts have outlined the top options available for franchise financing. Now all you need to do is choose the right option for your franchise business - and embark on your franchise journey.