Top 7 Franchise Financing Options for 2021

Updated on September 27, 2022
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Overview of Franchise Financing

If you’re looking to finance your franchise business, you may be aware that your needs will be different than many other business owners. Generally, due to the process required to buy and start a franchise, you’ll need a greater upfront investment to cover fees and resources, as well as an ongoing investment of capital to actually run the business.

In this guide, we’ll break down the best franchise finance options and how to apply once you’ve decided on the right financing solution for you.

Let’s get started.

Best Franchise Financing Options 

  1. SBA 7(a) loans: Best for a variety of franchise purposes, top alternative to traditional bank loans
  2. SBA CDC/504 loans: Best for financing real estate or equipment needs for franchise businesses
  3. OnDeck CapitalBest for short-term loans or lines of credit for newer businesses (one year and older)
  4. Apple Pie Capital: Best for experience working with and funding franchise businesses
  5. CAN Capital: Best for short-term loans with fast funding times
  6. Funding Circle: Best for affordable, online medium-term loan
  7. Internal Franchise Financing: Best for new franchises, discounts, and guided options straight from the franchisor

The Best Franchise Loans

If you’re looking to finance your franchise, there are a variety of lenders and funding solutions that may be able to help. However, considering the unique nature of starting a franchise, and the costs that can be associated, you may choose to start your search with financing options and lenders that have experience working with franchise businesses.

This being said, although traditional bank loans will offer the most desirable rates and terms for your franchise financing, it’s generally harder to qualify for these business loans. Therefore, you’ll find that overall, the best franchise loans are SBA loans or loans from alternative lenders. With either of these options, you’ll find convenient and accessible financing, that you can use to support a number of different purchases within your franchise business operations.

Let’s learn more.

SBA Loans

First, because the SBA makes funding more accessible for small business owners, SBA loans will be one of your top options for franchise financing.

This being said, however, it’s important to note that although 10% of all SBA loans go toward franchise financing, in order to qualify for SBA financing, the SBA must approve your franchise and list it on their Franchise Directory.

If your franchise isn’t in this directory, you’re not eligible for an SBA loan to fund this business. To get your franchise into the directory (if it isn’t already), the franchisor has to submit its franchise disclosure document (FDD) to the SBA for review. The FDD outlines the history, financials, marketing strategies, and other information about the franchise. Once your franchise is approved and listed on the directory, you’ll be eligible (at least in this respect) to apply for franchise financing from the SBA.

With this in mind, out of the various SBA loan programs, both the 7(a) loan program and the CDC/504 program are great options for franchise businesses.

SBA 7(a) Loans

To start, the SBA 7(a) loan program is the most popular SBA loan program and a great option for franchise finance.

As we mentioned above, SBA loans are particularly worthwhile for business owners who can’t qualify for traditional bank loans.

With an SBA 7(a) loan, you can fund essentially any purpose—working capital, equipment, inventory, and more. This being said, however, it’s important to note that SBA 7(a) loans cannot finance ongoing franchise or royalty fees.

Amounts on these loans range up to $5 million with terms from 10 to 25 years. Interest rates on SBA 7(a) loans are ultimately determined by the bank lender you work with, however, the SBA sets maximum rates—and your interest rate will typically fall between 7% and 9.5%.

In order to qualify for franchise financing in the form of an SBA 7(a) loan, you’ll need to have a good credit score, solid business financials, and (usually) at least two years in business. Compared to franchise loans from alternative lenders, it will be more difficult and time-consuming to qualify for an SBA loan, however, these loans will offer the most desirable rates and terms (second only to traditional banks).

Therefore, if you’re looking for a flexible solution for franchise financing, you’ll want to consider an SBA 7(a) loan as one of your best options.

SBA 504/CDC Loans

The next franchise finance solution you’ll want to consider is an SBA 504/CDC loan.

Unlike the 7(a) loan, SBA 504/CDC loans must be used for very specific purposes—such as purchasing or renovating fixed assets like real estate or equipment.

SBA 504/CDC loans can range in amounts of up to $20 million, with terms from 10 to 25 years. In addition to their specific purpose, SBA 504 loans are also different from SBA 7(a) loans in the way that they work. Whereas 7(a) loans are provided by an SBA partner, most often a bank, there are three parties that contribute to 504 loans: a bank, a Certified Development Company (CDC), and the borrower.

Because these three parties work together to issue the loan, you’ll find that the interest rates are much less straightforward than 7(a) loans, nevertheless, they tend to range from 4% to 7%.

This being said, although the 7(a) is often the top SBA loan option for franchise financing due to its flexibility, the 504/CDC may be a better solution if you’re purchasing new equipment or buying, improving, or expanding the real estate for your franchise location.

In order to qualify for an SBA 504/CDC loan for your franchise financing, you’ll once again need to ensure that your franchise is part of the SBA Franchise Directory. Additionally, you can expect the same qualifications as a 7(a) loan—great credit score, solid business financials, and at least some time in business.

Although an SBA 504/CDC loan requires higher qualifications and is slower to fund in comparison to other solutions on the market, this product offers some of the best rates and terms to finance a real estate or equipment need for your franchise.

Alternative Lenders

As we’ve mentioned, although SBA loans (as well as bank loans) can offer some of the best rates and terms for your franchise financing, they’ll also be slow to fund and require lengthy application processes—as well as stricter qualifications.

Therefore, if you need a franchise loan quickly, or can’t qualify for an SBA or bank loan, you should consider your options from alternative lenders.

These lenders may not offer the best rates and terms, but they’re able to provide a variety of products, simpler applications, and more lenient requirements.

Let’s explore some of the top options.

OnDeck Capital

Although the majority of OnDeck’s small business lending happens outside the franchise space, they’re committed to providing more and more franchise financing for business owners who need the capital to grow.

OnDeck provides short-term loans and short-term business lines of credit for franchisees that need fast access to capital, but don’t have the highest credit scores or longest time in business.

OnDeck offers a short-term loan in amounts from $5,000 to $250,000 and terms up to 24 months. Interest rates on an OnDeck short-term loan can vary depending on your qualifications.

Overall, in order to qualify for a short-term franchise loan from OnDeck, you’ll need a minimum 625 credit score, at least one year in business, and a minimum annual revenue of $100,000.

With a business line of credit from OnDeck, on the other hand, you can access a credit line from $6,000 to $100,000 with a term of 12 months. APR for this line of credit can also vary based on your qualifications. The basic qualifications for this product are the same as they are for OnDeck’s term loan.

Although you won’t be able to use funding from OnDeck to purchase a franchise, this lender offers flexible, accessible options for your ongoing franchise finance needs. Plus, especially compared to SBA and bank loans, OnDeck has a quick and easy online application and will be able to fund your franchise in as little as one business day.

Apple Pie Capital

Next, you might look into Apple Pie Capital as one of your best franchise finance options.

Apple Pie Capital works exclusively with franchise businesses to help them find the solution that’s right for their needs.

With Apple Pie, you can receive financing for new units, refinancing, recapitalization, remodels, and acquisitions, starting at $100,000. On the other hand, you can also access equipment financing loans starting at $15,000.

This being said, because Apple Pie works with a variety of different lenders, the interest rates and terms you receive on your franchise loan will vary, but as you may imagine, it will be largely based on the type of product and your qualifications.

Ultimately, if you’re looking for expertise and experience in the industry, Apple Pie Capital will be able to help you—whether you’re starting a new franchise or need to finance an existing one.

CAN Capital

If you need a short-term or medium-term loan to meet your franchise financing needs, you may look into CAN Capital as one of your top solutions.

CAN Capital works with businesses in a variety of industries, including franchise businesses.

With CAN Capital, you can access a short-term loan in amounts from $2,500 to $250,000 and a medium-term loan in amounts from $50,000 to $150,000. Terms for the short-term loans range from three to 24 months and two to four years for the medium-term loans. With their short-term loan, CAN Capital charges interest as a factor rate ranging from 1.15 to 1.48. For their medium-term loan, interest can range from 12.9% APR to 29.9% APR.

This being said, to qualify for a franchise loan from CAN Capital, you’ll need at least $4,500 revenue per month, a minimum credit score of 600, and 12 months preferred (although they will consider three months or more with consistent revenue) in business for their short-term loan. For the medium-term loan, you’ll need a 680 personal credit score, seven years in business, and a preferred $350,000 in annual revenue.

Although it may be difficult for most franchise business owners to qualify for CAN Capital’s medium-term loan, their short-term business loan is a worthwhile option for funding a variety of franchise needs from working capital to inventory purchases. Plus, CAN Capital will offer a simple and fast application process, and will even consider working with businesses who have current debt.

Funding Circle

For access to one of the most affordable business franchise loans you can find online, you might consider working with the alternative lender, Funding Circle.

Funding Circle offers medium-term loans in amounts from $25,000 to $500,000 with terms of six months to five years. Interest rates on Funding Circle loans start as low as 4.99% and can go up to 22.99%.

To qualify for a medium-term loan from Funding Circle, you’ll need at least two years in business and a minimum 620 credit score. Funding Circle does not set a minimum requirement for annual revenue.

This being said, Funding Circle provides a streamlined, online application process, allowing you to receive an offer in as little as one business day after all documents are submitted. On average, Funding Circle funds applications in three business days.

Additionally, like CAN Capital, Funding Circle will consider working with businesses that have existing debt and is willing to discuss debt consolidation.

Therefore, if you’re looking for one of the most affordable alternative lenders and a franchise finance loan that can fulfill a variety of needs, Funding Circle may be the best option for your business.

Internal Franchise Financing

Finally, the last solution on our list of the best franchise finance options isn’t a loan from the SBA or an alternative lender.

Instead of exploring either of these funding routes, you might also consider acquiring franchise financing internally, from the company that owns the franchise. In fact, many of the top low-cost franchises offer internal franchise funding assistance to encourage business owners to open a branch.

This being said, it’s always worth looking to see if your chosen franchisor offers internal funding and if they do, what kind of options they provide. Some franchisors offer straightforward business loans, some offer down-payment contributions, and some might offer reduced royalties or licensing fees if you open multiple branches.

Moreover, some franchisors may also offer franchise funding assistance programs. In this case, the franchisor might work directly with a third-party broker that specializes in funding franchises—or, they might simply refer you to a lender who they have a working relationship with.

Either way, it’s worth looking into the types of solutions your franchisor offers, as they likely will make it easier for you to access financing for your franchise business.

How to Apply for Franchise Financing

As is the case with any business loan, the application process for a franchise loan will likely be specific to the type of product and the lender you’re working with. For example, as we mentioned above, the process for applying to an SBA or bank loan for your franchise will be longer and require significant documentation. With many online lenders, on the other hand, you’ll likely be able to submit your documents quickly and easily online.

This being said, however, there are a handful of business loan requirements you can expect to be asked to provide, regardless of the specific application.

Here are a few to keep in mind:


Personal Credit History

Your personal credit score will be one of the most important factors that a lender looks at when you apply for franchise financing.

Ultimately, your personal credit score will indicate how reliable you are as a borrower—if you’re responsible with your personal debts, chances are you’ll be responsible with your business debts, too.

Therefore, before you apply for a franchise loan, you’ll want to check your credit score and see where it stands. If you have any unusual entries in your personal credit history—like unauthorized hard inquiries or accounts you didn’t open yourself—you’ll want to resolve those before you submit your franchise financing application.

Financial Information

Next, before you dive deep into the business loan application process, you’ll need to organize both your personal and business financial paperwork.

A lender will use this information to determine where your finances stand and how likely you will be to be able to pay back your franchise loan.

Specifically, you should expect to provide (at least) the following:

  • Bank statements
  • Balance sheet and income statements
  • Personal and business tax returns
  • Business debt schedule (if you have current debt)


Business Plan

Although not all lenders will require a business plan for funding, this requirement may be more significant for franchise business owners applying for financing.

This business plan will explain which franchise you intend to work with, how you plan to work with them, and how you plan to use your funding to start or grow your franchise business.

On the whole, lenders typically favor franchise businesses with brand names and long track records of success. Young franchises with few locations, therefore, may have greater difficulty qualifying for funding.

However, if you do want to secure franchise financing to open a branch of a smaller brand (or a new franchise altogether), you’ll want to strengthen your application in other ways—like with strong personal financial reports, a solid credit history, or a resume with significant business experience.


Basic Personal and Business Information

Finally, in order to verify the validity of your business operations, you’ll have to provide your franchise lender with basic information about you (as well as any other owners) and the business itself. Along these lines, you may be asked for documents such as:

  • Personal background information and ID
  • Resume
  • Business license and permits
  • Time in business and industry
  • Proof of ownership
  • Any other relevant legal or operating documents

Frequently Asked Questions

The Bottom Line

At the end of the day, starting or growing a franchise business isn’t always easy—but by understanding the different financing options you have available, and how to apply for them—you’re in the best place to access funding when you need it.

This being said, whether you decide a short-term loan, line of credit, or SBA loan is right to finance your franchise business, the next step is to prepare and submit your application.

Along these lines, you’ll want to be sure to work closely with your lender in order to understand exactly what you need for your application—this way, you can submit a complete and accurate application that will not only increase your chances of approval, but also streamline the process to get you access to your franchise financing faster.

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Priyanka Prakash, JD
Senior Contributing Writer at Fundera

Priyanka Prakash, JD

Priyanka Prakash is a senior contributing writer at Fundera.

Priyanka specializes in small business finance, credit, law, and insurance, helping businesses owners navigate complicated concepts and decisions. Since earning her law degree from the University of Washington, Priyanka has spent half a decade writing on small business financial and legal concerns. Prior to joining Fundera, Priyanka was managing editor at a small business resource site and in-house counsel at a Y Combinator tech startup.

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