Purchase a Franchise

A franchise loan is used to purchase a franchise license. What this license does is allow the franchisee to either sell a product or provide a service under the name of the franchisor in exchange for startup and annual licensing fees.

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Obtaining Financing

Just like any other business, finding financing for your new venture can be a headache. However, various options exist that are specifically dedicated to financing franchise businesses. 

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The Franchisor

Some franchisors will help new franchisees start their business by waiving the franchising fee. The franchisors can also partner with other lenders such as commercial banks to help new franchisees raise capital for starting their business.

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If a company agrees to fund its new business partners, it usually indicates this on its official website and also on chapter ten of its franchise disclosure document or agreement. However, it’s highly recommended that you compare the franchisor's financing terms with other sources of financing available to you.

Franchise Financing Company

Several companies specifically specialize in funding new franchisees. These companies usually match the borrowers with the perfect lenders for their financial needs. The franchise financing companies can also lend directly to new businesses.

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Traditional Loans

You can arrange to borrow from ordinary commercial banks or credit unions for your new venture. According to the Small Business Administration (SBA), new franchise owners have a higher tendency to borrow from commercial banks than new business owners. Lenders prefer advancing cash to new franchises over other new businesses since they already have trust in the brand and business model of the business being funded.

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However, despite the tendency of commercial banks to favor franchise businesses, you are still subject to the bank's underwriting and lending policies. The bank still has to review your net worth and credit history to determine whether you can pay back the loan advanced to your business. In some cases, you may also have to provide collateral to secure your business loan.