Franchise Finance: Top 6 Franchise Loans of 2019

Follow this guide to learn all your franchise loan options.
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Franchise Financing: Your Go-To Guide

Starting a franchise offers the independence and flexibility of small business ownership with the infrastructure of a large corporation. Despite these benefits, franchise finances come with miscellaneous fees that will require significant investment on your part.

If you don’t have the capital to cover franchise finances out-of-pocket, you’ll probably want to check out your franchise funding options to help finance your franchise dreams. Franchise funding will help cover the many costs—and growth opportunities—that come built into a running a franchise.

The top six franchise finance loans of 2019 are:

  1. SBA 7(a) loans
  2. SBA CDC/504 loans
  3. OnDeck Capital
  4. SmartBiz
  5. CAN Capital
  6. Funding Circle

In this guide to franchise finance, we walk through all of the top franchise loans you can choose from to cover the costs that accompany chasing your franchising dreams.

The Best Franchise Loans of 2019

Alternatively, if your search for franchisor financing doesn’t work out, you could pivot your search towards franchise loans to help subsidize your franchise finances. You’ll find top-tier franchise loan terms from the SBA, and you’ll find convenient, accessible franchise loans from alternative lenders.

Let’s dive deeper into these top two sources of franchise loans.

Franchise Loans Through the SBA

The Small Business Administration is another place to look for small business loans for franchise financing. While commercial banks mostly lend to borrowers that they have established relationships with, the SBA is much more accessible for small business owners.

About 10% of all SBA loans go towards franchise financing, but to qualify for SBA financing, the SBA must approve your franchise and list it on the Franchise Directory. Franchises that aren’t in the directory are not eligible for SBA loans. To get into the Franchise Directory, 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. When you work with an approved franchise, it makes your loan process go a lot faster.

The Best SBA Programs for Franchise Loans

In terms of franchise lending, you might want to consider both the 7(a) and CDC/504 programs. In 2012, the SBA guaranteed almost 3,000 loans to franchisees through the 7(a) and CDC/504 programs—approximately $3.5 billion in franchise financing. So, both programs are popular options for franchisees.

Either of these SBA loan programs is a great choice for franchisees who don’t qualify for commercial bank franchise loans because they can’t front the down payment, have insufficient collateral, or lack a strong credit score and experience.

Franchise Finance Through the SBA: The Pros and Cons

Thinking of accessing franchise finance through the SBA? Consider the most notable advantages and disadvantages before you take the plunge:

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Franchise Funding Through the SBA: The Pros

SBA loans offer arguably the most affordable terms on the market for small business loans. Because the Small Business Administration guarantees a portion of the loans that SBA approved-lenders disburse, franchise loans through the SBA will boast the following advantages:

  • Larger Loan Amounts: SBA loans can range in size depending on which program you decide to seek funding through. However, generally speaking, loans backed by the SBA can be as much as $2 million.
  • Longer Repayment Terms: Not to mention, SBA loans are actually one of the very few truly long-term loan products on the market. They typically come with repayment terms of 10 years, though their repayment terms can stretch as long as 25 years.
  • Regulated Interest Rates: Finally, any SBA-approved lender will have to adhere to SBA-dictated interest rates. As a result, SBA loans will come with interest rates in the single digits that can often dip as low as 6.75%.

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Franchise Funding Through the SBA: The Cons

The main downsides to franchise funding through the SBA will come from the bureaucracy and paperwork that often accompanies working with a government entity. To access the attractive perks that come with getting a franchise loan from an SBA lender, you’ll have to put up with the following headaches:

  • Longer Time-to-Fund: Because the application process for franchise funding through the SBA will involve multiple entities—one of which is a government entity, no less—there will be a lot of paperwork and waiting to endure. As a result, securing an SBA loan for your franchise will take weeks or even months.
  • Harder to Qualify For: Additionally, because SBA loans are the creme of the crop for small business loans, they will be pretty tough to qualify for. And this will be especially true for franchises that are just opening up—many SBA lenders will want to see substantial business history for any borrower they approve.

Not to mention, you’ll have to be working with an SBA-confirmed franchisor to be able to qualify for a franchising loan through the SBA, so be sure to check from the get-go that you fulfill this fundamental credential.

Franchise Loans from Alternative Lenders

If your franchise needs money quickly, you might not have time to wait for franchise financing from a commercial bank or the SBA—the approval process can take months. If you’re looking for a more convenient, more accessible option for franchise funding, consider getting a franchise loan from an alternative lender.

Franchise Loans: The Best Alternative Lenders

Do financing loans from alternative lenders sounds like something your business could benefit from, despite their less desirable terms?

If so, then you’ve got a lot of top-tier alternative lenders to choose from. Here is a quick run through of four of the best alternative lenders for franchise loans.

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OnDeck Capital

While the majority of OnDeck’s small business lending happens outside the franchise space, it’s 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 best credit rating. With an OnDeck line of credit or short-term loan, you can secure large amounts of capital at a fast approval time—as little as one day.

To get a loan from OnDeck, you need to be in business for 12 months and bring in at least $200,000 in annual revenue, so OnDeck won’t necessarily be much help for funding for franchise purchases, but rather will be ideal for later-on franchise finance.

Learn more about OnDeck.

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If you’re opening up a franchise, applying through the SBA for franchise lending is a smart move. A great place to look for easy SBA loans is SmartBiz.

SmartBiz connects small businesses—like your franchise—to government-insured loans of up to $350,000 at some of the lowest interest rates on the market. SmartBiz makes sense for franchisees who have time to wait for their loan—SmartBiz loans usually take 1 – 2 months to fund. If you choose to use SmartBiz to finance your franchise, you should be prepared to provide the documentation that you would need to apply for an SBA loan. There’s a lot of documentation for you to get in order and for SmartBiz to process, but it’ll be worth the wait when you score an inexpensive loan at a 10-year term.

Learn more about SmartBiz.

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CAN Capital

If you need a short-term loan, a medium-term loan, or a merchant cash advance to meet your franchise financing needs, CAN Capital could be the right alternative lender for you. CAN Capital is a trusted financier of franchises, funding over 490 franchises.

With CAN Capital, you can expect to get up to $150,000 in loan amounts. If you operate more than one franchise location, you can score up to $250,000. Half of the loans processed through CAN Capital are funded in the same day or the next, so if you need franchise financing right away, CAN Capital is a great option.

Learn more about CAN Capital.

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Funding Circle

If you think using a medium-term loan or an equipment loan as franchise financing is a smart move for your business, Funding Circle is a great alternative lender for you to consider.

To get a loan from Funding Circle, your business will have to be profitable and established—you need to have been in business for at least 2 years. With this marketplace lender, you can expect a loan of $25,000 to $50,000 in your bank account in as little as 7 days

Learn more about Funding Circle.

Franchise Finance from Alternative Lenders: The Pros and Cons

If you’re considering accessing franchise financing through one of these alternative lenders, then great! As always, though, you’ll need to be familiar with the ins and outs—both good and bad—of funding a franchise with one of these lenders. Here are the advantages and disadvantages of accessing franchise finance through an alternative lender:

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Franchise Funding from Alternative Lenders: The Pros

With a closer look, securing a franchise loan through distinct advantages over going to an SBA lender to do so. Let’s take a moment to focus on why you should consider accessing franchise funding through an alternative lender:

  • Quicker Time-to-Fund: When you measure them against SBA loans and bank loans, loans from alternative lenders are much quicker to fund. That’s because they will be far more automated, as many alternative lenders are significantly more tech-savvy than traditional bank lenders. Additionally, alternative lenders will involve much less bureaucracy than bank and SBA loans and, as a result, will require a lot less paperwork from you to apply for a franchise loan.
  • Easier to Qualify For: Plus, if you don’t qualify for a loan from a commercial bank or the SBA, you might have an easier time securing franchise financing with an alternative lender—they have looser qualification standards. This means that if you’re working with challenged credit or less time in business, then you’ll have a better chance of accessing a franchise loan with alternative lenders.

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Franchise Funding from Alternative Lenders: The Cons

That said, with these upsides to funding your franchise with an alternative lender, there comes one, perhaps insurmountable downside, which is:

  • Less Desirable Terms: Alternative lenders are much more accessible than traditional financing sources, but their products come at a cost. You’ll find higher interest rates attached to alternative loan products than you would with bank loans.

Alternative loans are so expensive partly because of their accessibility—lenders need to minimize the risk of lending to less-qualified borrowers by charging high interest rates.

As a result, franchise loans from alternative lenders will also carry shorter repayment terms and offer smaller loan amounts than they would with more traditional lenders.

Franchise Finance: How to Apply

Before you apply for help with your franchise finances, you’ll have to get some information and documentation in order. Once you get your information in order, you can start your search for the best franchise financing out there.

What can you expect for the application process?

Well, you’ll likely need to get these documents in order.

Personal Credit History

Your personal credit score will be quite important for any lender that finances your franchise. This might be a surprise—why is your personal credit score more important than your business score?

Good question. Here’s why: when lenders look to fund your franchise, they need some indication of how reliable you are as a borrower. Your personal credit score is a good indication of your trustworthiness. If you’re responsible with your personal debts, chances are you’ll be responsible with your business debts, too.

Before you apply for franchise lending, you’ll want to check your credit score and see where it stands.

Financial Information

Before you dive deep into the loan application process, you’ll need to organize your financial paperwork. You’ll need a personal financial statement, listing your assets, liabilities, net worth, and personal income. Lenders require this information to determine how well you manage your finances.

What should you specifically be ready to provide?

Balance sheet. Your personal balance sheet will give lenders an idea of what you have and what you owe, giving insights into your assets and liabilities. A balance sheet will list your current bills, all your charges, your auto loans, home mortgage, business loans, and more.

Income Statements. Your income statements will verify your source of income, assuring lenders of where your money is coming from and going to. Most lenders will look at your income and how you live within that income to decide whether or not you’re responsible with your personal finances. If handle your personal income well, odds are you’ll handle your business finances responsibility, too.

Business Plan

Your creditworthiness and financials are just one part of your franchise lending requirements when you apply for help with your franchise finances. Most entities that provide franchise funding will also want to know which franchise you intend to work with, and how you plan to work with them. Lenders typically favor businesses with brand names and long track records of success. Young franchises with few locations, however, are less desirable investments for most franchise lending entities.

Track Record

You might also be asked about your work history, income, background, and overall business track record. If you can prove that your personal finances are in order and you can successfully run a business, you’re probably a strong candidate for franchise financing from a bank.

Your Franchise Financing Next Steps

So, now that we’ve made it through your ultimate guide to managing your franchise finances with a little help, it’s time to start thinking next steps.

If you’ve decided on the type of franchise financing you’re ready to go after, then your next steps will be prepping your application. Whether you’re going to go straight to your franchisor for financing options, or you’re going to apply to an SBA or alternative lender to get the funding you need, be sure that you’ve got the necessary paperwork and credentials to make your application as strong as possible.

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