Thinking about buying into a franchise? You’re not alone—franchised businesses are a major force in the U.S. economy, generating nearly $900 billion in output each year. Brands like Starbucks, McDonald’s, Subway, 7-Eleven, and Hilton are everywhere—and they’re all franchises. Buying into a proven concept gives you instant name recognition and built-in support, helping you become profitable faster than starting from scratch. But financing a franchise isn’t always straightforward. It requires a mix of funding—real estate, equipment, working capital—which means a typical business loan might not cut it. In this article, we’ll break down how franchise financing works and show you how to approach it with confidence.
What is Franchise Financing?
Unlike starting an independent business, buying a franchise comes with unique costs and requirements that affect how financing is structured. Typical expenses include franchise fees, startup costs, real estate acquisition, and build-out expenses. For example, a franchise like McDonald’s may either specify a property as part of the deal or require you to find your own real estate. However, you’ll still need to renovate the property to meet McDonald’s specific requirements. In this example, you would need at least two separate loans—one to acquire the franchise and another to pay for renovations. That doesn’t include equipment like industrial ovens and freezers or working capital to pay new employees. A franchise loan bundles all of these costs into one loan.
What are the Benefits of Franchise Financing?
Franchise financing offers significant advantages, particularly for newer business owners. It allows you to grow equity while protecting your cash reserves, helping you scale your business without tying up all of your available funds. For less experienced owners, franchise financing can be an easier option than traditional business loans, which often require a longer track record of financial success. Lenders view franchises as lower-risk investments because you’re building on the foundation of an established, successful brand. This makes them more confident in your ability to repay the loan compared to a business startup without an established financial history.
Additionally, franchise financing is a far more favorable option than relying on business credit cards to cover startup costs. Franchise-related expenses can be substantial, and credit cards often come with high interest rates and limited credit limits. That means you must secure additional loans to cover any remaining costs. In contrast, franchise loans are designed to meet the unique needs of franchisees, giving you the flexibility to cover equipment, real estate, and other essential expenses all in one package. By securing the right financing, you can focus on growing your business, knowing you have the financial foundation to support it.
Where Can You Get Franchise Financing?
Franchise financing can be sourced from a variety of lenders, including government agencies and private institutions. However, most small business owners turn to the Small Business Administration (SBA) when seeking franchise funding. The SBA is often the go-to choice for borrowers who may not qualify for traditional bank loans. This is because SBA loans are partially backed by the government, offering lenders a guarantee in case your business doesn’t succeed. As a result, SBA loans tend to come with lower interest rates, lower down payment requirements, and longer terms.
One of the most popular SBA loan options for franchisees is the SBA 7(a) loan. This loan is flexible and can be used for a variety of purposes, such as real estate, equipment, and working capital. However, there are some constraints to keep in mind. SBA loans typically require a good personal credit score, a solid business plan, and have limited eligibility based on factors like your industry, business type, and location. Additionally, the application process can be time-consuming, and approval isn’t guaranteed.
While SBA loans are a great option, these constraints can make the process more challenging for borrowers. This is where partnering with a broker is invaluable. We’ll help ensure you have all the necessary components for a strong application, so the process runs smoothly and you can secure the financing you need without unnecessary delays.
If your business doesn’t qualify for an SBA loan—or if you need funding on a faster timeline—private lenders can be a strong alternative. Lenders like ApplePie Capital, Boefly, Benetrends, and Guidant Financial specialize in franchise financing and understand the unique needs of franchise owners. Unlike traditional banks or government-backed programs, private lenders are more flexible when it comes to credit score requirements, collateral, and loan structure.
This flexibility comes at a cost: private loans typically carry higher interest rates to offset the lender’s risk. However, they can still be a smart option for business owners who are confident in their business plan but may not meet stricter SBA criteria. Another advantage is that private loans are often easier to refinance down the line—so if your financial position improves, you may be able to secure better terms later.
Don’t overlook the value of your existing relationships, either. If you’ve had long-standing accounts with a local bank or credit union, they may be more open to negotiating favorable terms. Banks are often more willing to support customers they already know and trust, especially when it comes to expanding into a franchise model.
Final Thoughts
Franchise ownership is a major investment—and choosing the right financing can make all the difference. The loan package your franchisor offers might be one option, but it’s rarely the only one, and often not the most cost-effective. Taking time to compare lenders and understand your full range of choices can help you avoid costly mistakes and set your business up for long-term success.
As brokers, we know the franchise lending landscape inside and out. We’ll help you navigate your options, avoid common pitfalls, and secure a deal that supports your goals—not just your startup costs. If you’re serious about building a strong foundation for your franchise, don’t go it alone.
Let’s find the financing that gets your doors open—and keeps them open. Reach out today to get started.