Checking rates will not hurt your credit
Up to $5,000,000
Base rate plus 3.00%
300 maximum for real estate, including extensions
No stated minimum, but higher chance of approval with 680+
No stated minimum, but two years are typically needed for approval
The United States Small Business Administration (SBA) administers loans to small businesses primarily through the SBA 7(a) loan program. Lenders partner with the SBA to offer franchise applicants and other small business owners funding for their endeavors with favorable rates and low fees.
There are several pros and cons of SBA loans to consider, but the long repayment terms, capped interest rates, and high max financing amount (up to $5,000,000) make it a favorable option for funding a franchise purchase. Just note that the approval process can take months, and you’ll likely need to make a down payment and offer collateral.
$2,000 to $250,000
3.00%
6, 12 or 24 months
660
1 year
The American Express Business Line of Credit (formerly Kabbage) is best for new franchises. Entrepreneurs can use funds to pay franchise fees as well as fund the ongoing startup costs associated with launching a new business. That’s because it’s a credit line rather than a single loan, allowing you to borrow what you need when you need it.
However, repayment terms are short. The longest term available is 24 months, which results in fees as high as 27.00%. Further, each time you draw from the credit line, American Express counts that as a new installment loan. The confusing process and short repayment terms can be a turn-off, but if you simply need temporary help for a low-cost franchise startup, Amex could be a good match.
$25,000 to $500,000
15.22%
6 to 84 months
660
2 years
Funding Circle is best for established franchises. Its strict loan requirements — like a good credit score and two years in business — can make it more challenging for new business owners or start-ups. Though origination fees can get high (up to 10.49%), Funding Circle is otherwise notable for low or no fees: no prepayment penalties, monthly processing fees, admin fees, transaction fees or account management fees.
Note: The information above is about Funding Circle’s business term loans. Funding Circle is also an approved SBA 7(a) lender; qualified franchise applicants may get a better deal by going that route. Funding Circle also offers business credit lines.
$125,000 to $5,500,000
3.00% of the amount financed
120 to 300 months
No stated minimum
No stated minimum
The CDC/504 loan is another franchise finance option offered through the SBA, which offers up to $5,500,000 in loans (borrowers are responsible for 10% of the amount financed as a down payment). The CDC/504 loans are designed specifically for buying or renting real estate or purchasing equipment, which can be immensely helpful when launching a new business — whether it’s your own or part of a franchise.
As with other SBA loans, the repayment terms are long, interest rates are low, and the amount you can finance can be high. Just note that it can take months to have your application reviewed, approved and to get the loan paid out.
$5,000 to $250,000
27.30%
Up to 24 months
625
1 year in business
OnDeck is the best franchise loan for fast funding — some applicants get their business term loans funded the same day they apply. Applying is also fast; OnDeck promises just a few minutes to submit your application. The requirements for approval are quite manageable, too: one year in business, $100K in annual revenue and a personal credit score of 625.
The cost of an OnDeck loan is less appealing, however. You might pay origination fees, there’s a monthly maintenance fee, and APRs start at 27.30%.
Note: The information above is about OnDeck’s business term loan; you can also apply for a business line of credit through OnDeck.
Up to $150,000
4.66% for 12 weeks; 8.99% for 24 weeks
3 or 6 months (12 or 24 weeks)
600
“Ideally” 6 months
Fundbox offers the best line of credit for franchise hopefuls. It’s easier to qualify for Fundbox franchise financing thanks to its shorter time-in-business requirements and lower credit score thresholds. (That also makes Fundbox one of the best franchise loan options for bad credit.)
Franchise applicants will need to be comfortable with a quick repayment plan, however; the max term length is only 24 weeks (about half a year). You’ll need to make sure your business plan includes a timeline to quickly repay what you borrow, but remember it’s a line of credit, so you can make additional draws when needed.
A franchise loan is a form of financing that helps entrepreneurs launch a franchise. The loan typically covers franchise fees and other startup costs associated with opening a franchise.
Although franchise financing can make the high cost of launching a franchise more realistic, most companies require applicants to have a portion of the investment in liquid assets. Companies may also have net-worth requirements for applicants.
Starting a franchise with no money is challenging, but it’s not impossible. Research franchises with small fees — like those less than $20,000. Check to see what loan options you can get directly from the franchise company, but also consider loans from the SBA or online lenders, the latter of which may have less strict credit requirements than traditional banks and credit unions.
Banks and credit unions do give loans to franchisees. Research the financial institution of your choice to understand their business loan requirements before you apply.
To get a franchise loan, you need to be a successful entrepreneur with a strong credit score, healthy finances that include liquid assets, a detailed business plan and a positive net worth. Each lender has its own requirements for getting a loan, but they’re more likely to take you seriously — and approve you — if you have a fair amount of capital to invest in the franchise and a proven track record of turning profits.
