Franchise Financing

Reviewed by Ty Crandall

November 15, 2023
Franchise Financing Credit Suite

What is Franchise Financing?

Franchise funding (AKA franchise financing) is business financing which is intended to support a franchise and its operations. Here are some examples of how business owners can use them:

  • Acquire a pre-existing franchise, either from existing franchisees or perhaps from the main franchising company itself (the franchisor)
  • Buy a brand-new franchise
  • Finance real estate (for a mortgage for a purchase, or for money down on a lease)
  • Building renovations, like storefront remodeling or interior design/redesign
  • Buying assets such as equipment
  • Purchasing inventory or supplies

Franchises have initial startup costs, much like other businesses. This can include a franchise fee for licensing. To get started and up and running, many franchisees will need some form of franchise financing.

Franchisees will also have to pay ongoing royalty fees to the business’s owner. Whether the franchise or the area it’s in prosper, those fees still have to be paid. A franchisee can need franchise financing for this fact of franchise ownership as well.

Franchise Financing from the Franchisor

Franchise Financing Credit Suite

If you need funding to purchase a franchise, your first conversation should be with your prospective franchisor. Many corporations with franchise business models offer tailored financing solutions exclusively designed for their franchisees. 

These types of franchise financing can be either through partnerships with specific lenders or by providing capital directly from the corporation. This is one of the most common ways to finance a franchise and offers many benefits. 

For example, Gold’s Gym, UPS Store and Meineke all offer franchise financing options to their franchise owners.

One benefit of using franchisor financing is that it can be a one-stop shop for everything you need. Many of these programs don’t just offer financing for the franchise fees. 

They can also offer franchise financing to purchase equipment and other resources you need to start up the business. If you’re working with a franchisor who offers their own financing program, chances are you won’t need to look much further for funding.

Each franchisor financing agreement will differ. But some offer to take on as much as 75% of the debt burden from the new entrepreneur. Agreements might involve deferred payments while the business is starting up. 

Or they may structure repayment on a sliding scale. Have your independent business attorney or accountant review the terms of your franchise agreement and the franchise financing agreement. Have them help you understand the full terms before you sign.

Traditional Term Loans

These are another option for franchise financing. Many business owners consider approaching their bank for funding. But a traditional term loan doesn’t have to come from a bank. 

Such franchise loans can come from a credit union or an alternative lender. 

With these franchise loans, the lender offers a lump sum of cash up front, which you then repay, plus interest, in monthly installments over a set period of time.

These kinds of conventional loans are more likely to be available to business owners with good credit. Lenders will be looking at your financial history, as in how well you pay your bills. 

A better financial history means interest rates and terms will be better, and it can be the difference between being approved or not.

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SBA Loans

The Small Business Administration guarantees a portion of the loans made in its name. This gives lenders an incentive to offer more loans, and at better rates and terms. 

But keep in mind that qualification standards for an SBA loan are strict. For example, they want to see a business plan. New business owners in particular are not likely to qualify for SBA financing.

Also franchisees should check the SBA franchise directory, as not every franchise will qualify.

Alternative Lenders

Often, an alternative lender will have less stringent requirements and shorter turnaround times than a traditional financing option.

They offer a variety of business loan options like equipment financing, business lines of credit and term loan to help an entrepreneur succeed.

Yet this access and convenience may cost you. Alternative loan products tend to be more expensive, offer shorter repayment terms and lower business loan amounts, than their more traditional counterparts.

But it may be worth it if you need to supplement your existing financing or you can’t qualify for a bank or SBA loan or need cash quickly to jump on a life-changing opportunity. 

So don’t dismiss alternative lending out of hand. Here are some alternative lenders to consider.

Apple Pie Capital

This lender works exclusively with franchise businesses to help them find the solution that’s right for their needs. Get financing for new units, refinancing, recapitalization, remodels, and acquisitions, etc. You can also access equipment financing loans. 

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

Apple Pie Capital is specifically dedicated to franchise financing. Get 5 – 10 year payment terms. They have flexible collateral options, so these are not unsecured loans. There are no prepayment penalty options. 

CAN Capital

This lender works with businesses in a variety of industries, including franchise businesses. With CAN Capital, you can access short-term loans and medium-term franchise loans. 

Terms for the short-term loans range from 3 to 24 months, and 2 to 4 years for the medium-term loans. CAN Capital charges interest as a factor rate.

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 3+ months with consistent revenue) in business, for their short-term loan.

Qualifying for a medium-term loan is stricter. For a CAN Capital medium-term loan, you’ll need a 680 personal credit score, 7 years in business, and a preferred $350,000 in annual revenue.


This is one of the easiest and quickest ways to get a short-term loan up to $250,000 or a line of credit up to $100,000. 

Though OnDeck isn’t specifically geared toward franchise owners, it’s a viable online loan option for any type of small business owner who doesn’t qualify for a bank loan or doesn’t want to wait months to receive small business loan funds.

Funding Circle

This lender has numerous franchise partners across the US, including Papa John’s, Pinkberry, Quiznos, etc. Funding Circle offers various loan products through partnered lenders for franchises in different stages of growth. 

For Funding Circle’s standard term loans and lines of credit, you’ll need to be a franchisee with a business that’s at least two years old and have a credit score of at least 660.

But they also offer merchant cash advances, short-term working capital loans, and invoice financing. These choices have higher rates, but more lenient requirements. 

For example, for an MCA, you’ll only need six months in business, and a credit score of 500.


Get an online SBA loan up to $5 million for commercial real estate purchases, loans up to $350,000 for debt refinancing and business capital, and bank term loans up to $500,000. This lender is only an option for established franchises. 

You’ll need at least two years in business, positive cash flow, and good personal credit.

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If you have a decent social media presence and a fairly large number of friends or followers, crowdfunding may be feasible. Acquaintances are not likely to send you thousands of dollars. But a few bucks here and there can add up. 

Crowdfunding is also a way to get funding without having to give up a portion of control and ownership.

Angel Investing and/or Loans from Friends and Family

The main difference between the two is angel investing is actually a sale of some of your ownership and control, whereas loans from friends and family are much like more formal loans from a provider. 

Your family and friends are under no obligation to charge the kind of interest rates prescribed by the Federal Reserve, so they could potentially charge more. On the other hand, they aren’t obligated to charge interest at all.

Also, your family and friends are under no obligation to put anything in writing, but you should do so anyway, for the sake of your sanity if nothing else. Having your family and friends loan you money or buy a part of your business will change the dynamic. 

Can your relationship stand the strain?

General Requirements For Franchise Financing

Franchise finance requirements are going to differ, depending on the franchise lending business owners are seeking. Qualifications for many of these small business financing options will also hinge on time in business and business owners’ FICO scores.


Since the SBA doesn’t actually lend money, the question of requirements must go directly to the lenders themselves. While their specifics will vary, many require paperwork such as business plans, tax returns, leases, and credit records.

And then, in addition, there are specific requirements for the types of SBA loans on offer.

7(a) Loans

According to the SBA, a franchise entrepreneur will need to submit all of the following documents:

  • Borrower information form: Complete SBA Form 1919 and submit it to an SBA-participating lending institution.
  • Financial statements: Complete SBA Form 413 (personal financial statement). This helps SBA and other stakeholders assess your eligibility.
  • Business financial statements: Submit the following to help show your ability to repay a loan:
    • Profit and loss statement – Current within 180 days of the application. Also include supplementary schedules from the last three fiscal years.
    • Projected financial statements – Include a detailed, one-year projection of income and finances and explain how you expect to achieve this projection.
  • Ownership and affiliations: Provide a list of names and addresses of any subsidiaries and affiliates, including concerns, in which you hold a controlling interest or that are otherwise connected to you.
  • Business license or certificate: Provide a copy of the original business license or certificate of doing business. If your small business is a corporation, stamp your corporate seal on the SBA loan application form.
  • Loan application history: Include records of any loans you may have applied for in the past.
  • Income tax returns: Include signed personal and business federal income tax returns of your business’ principals for the previous three years.
  • Resumes: Include personal resumes for each principal.
  • Business overview and history: Provide a history of the business and its challenges. Include an explanation of why you need the SBA loan and how it will help your business.
  • Business lease: Include a copy of your business lease, or a note from your landlord, with the terms of the proposed lease.

504 Loans

504 loans are available exclusively through Certified Development Companies (CDCs). Business owners must fill out an application and check the SBA’s extensive library to determine the specifics.. 


There are no set requirements for a microloan from the SBA. Rather, business owners will need to work with an SBA-approved intermediary in their area. SBA-approved lenders make all credit decisions and set all terms for the microloan.

Traditional Lending Institutions

Traditional lenders will often have requirements similar to those of the SBA. 

As the economy continues to show signs of issues in the banking industry, requirements will likely change and tighten up.

Typical requirements include:

  • Time in business
  • A certain minimal personal credit score
  • A certain minimum business credit score
  • Tax returns from the principals
  • Tax returns from the small business itself
  • Your business plan

Because traditional banks tend to be rather conservative, they tend to not loan to startups unless the application is very strong. A bank needs a reason to trust the person and business it is lending to.

But a franchise is more of a special case. Because even if the franchisee is new to the business world, the overall franchising company most likely is not. 

Also, opening a franchise often requires a large upfront investment. As a result, if an entrepreneur can come up with, say, a half a million dollars to open a McDonald’s, then a bank will be more confident that the new entrepreneur can pay back a loan.

Business Lines of Credit

For a franchise business line of credit, for example, a lending institution will likely want to see some time in business, a good amount of stable revenue coming in, and a decent business credit score for the franchise. 

The owner will probably have to have good personal credit as well to get this kind of money for their franchise opportunity.

A business line of credit is less likely to be available to a first-time franchise owner. 


Contrast business lines of credit with, say, a merchant cash advance. It will require the lowest FICO scores for pretty much any financing options. However, it will only be available if a franchise has regular credit card sales. 

Also, any franchise financing expert will tell an owner that the interest rate for an MCA can be very high.

Because MCAs work by taking a percentage of profits, the business owner will be paying back the MCA provider before they pay any other bills. 

Rent, utilities, payroll, and any continuing franchise fees will take a back seat to paying back the MCA company.

Real Estate Financing is a Special Case

For this form of franchise business lending, the real estate will serve as collateral. Personal and even business credit scores will not loom very large. 

With real estate, a proven valuable form of collateral, a franchisee will be able to get financing from an Equal Housing Lender or just about any other kind of lending institution.

However, many franchising companies, such as McDonald’s and Chick-Fil-A, will own the real estate, so this will likely not be on the table for many franchisees.

Would commercial real estate investors be interested in realty financing for a franchising company? The answer is: sometimes. 


There is not a lot when it comes to qualifying for crowdfunding. In general, all you will need to do is select a crowdfunding platform that handles your industry and allows you to use the platform for the kind of fundraising you’re looking for.

That is, many commercial crowdfunding platforms will out and out disqualify some industries, such as cannabis. 

Always check any crowdfunding agreement, to be certain you can abide by it. Many platforms will make you give all the money back if you fail to meet your objective. 

Angel Investors

There are two types of angel investors: accredited and non-accredited. Your friends and family are highly likely to be the latter.

Accredited angel investors tend to be wealthy individuals who have been there, done that with angel investments. Angel investors who are accredited have to be millionaires, for starters. 

The chances of accredited angel investors being interested in bankrolling a new franchise owner are vanishingly small. So, it is most likely that non-accredited angels will be the only choice.

There are few if any requirements for working with non-accredited angels. And while a written agreement with a relative or friend may feel like overkill, draft, sign, and notarize one anyway.

If the matter ever ends up in a courtroom, you will be awfully glad that you did.

Alternative Lending Options

Companies that offer alternative lending have their own requirements. Some will specialize in giving chances to entrepreneurs with bad personal credit. Others work mainly in just a few industry niches.

Business Credit for Franchises

Franchises, just like every other form of business, can build and improve their business credit. As long as they are an LLC or corporation it is fine. Note: you need each company you want to build business credit on to have its own EIN number.

But keep in mind, many franchises may require purchases directly from headquarters or suppliers specifically designated by them. 

This can be anything from uniforms to beef, to architectural plans for erecting a new building or renovating an existing one. It will always pay to check.

Information on Credit Suite's Business Credit and Finance Guide. Get to know our business credit and finance guide, with new ways to finance your business without emptying your wallet. Check out our professional research.

Franchise Financing: Takeaways

Franchises need funding, like every type of business. Check with the franchise itself to see if they have funding. Check the SBA and your bank, and try an alternative lender. 

Consider crowdfunding, angel investing, or loans from your friends and family if other sources are not forthcoming. And be sure to build business credit for your franchise!

About the author 

Janet Gershen-Siegel

Janet Gershen-Siegel is the seasoned Finance Writer and a former content manager at Credit Suite. She has been admitted to practice law for over 30 years, with a focus on litigation and product liability, and is a published author, with writing credits at Entrepreneur, and

She has a BA in Philosophy from Boston University, a JD from the Delaware Law School of Widener University, and a MS in Interactive Media (Social Media) from Quinnipiac University.

She regularly writes for Credit Suite, which helps businesses improve Fundability™, build credit, and get approved for loans and credit lines.

Her specialties: business credit, business credit cards, business funding, crowdfunding, and law

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