Where to Get Funding for Your Franchise Business

Piggy bank and coinsOne of the biggest challenges you could face when starting a franchise business is getting funding for it. The Small Business Administration even states that new franchisees are 15% more likely to take out a loan to finance their business other than owners of new businesses.

That’s unless you’re liquid enough and could raise the startup costs from your own pocket. Otherwise, you need to look into different funding options to get the ball rolling on your franchise. That said, whether you’re looking to invest in a lawn service franchise or fashion apparel franchise, below are the most common funding options to consider:

Funding from the Franchisor

Some franchisors offer financial help by being partners with select lenders to aid franchisees in getting a business loan quicker or in waiving some fees. If a franchisor offers financial aid, check their website and Section 10 of their Franchise Disclosure Document. Before taking up a franchisor’s financial help, however, compare the financing terms with other viable funding options.

Franchise Financing Organizations

Some companies specialize in financing franchise businesses. In general, you could choose from two options when working with a franchise funding organization, either through borrowing from them directly or working with their partner lenders to obtain a small business loan.

Traditional Loans

Credit unions and banks are an excellent source of funding for franchise businesses. While some lenders are more keen on extending funding to franchises with established business models and brands, you would still have to meet the minimum requirements, including a great credit score and stable finances, among others. You might likewise have to put up collateral depending on the lender’s lending policies.

The Small Business Administration Loan

The SBA only guarantees various loan products, so you would need to find an SBA-approved lender to with you. Do note though that the SBA has strict requirements, but if your franchise business meets their eligibility requirements, it’s easy to get an SBA loan.

When looking at the different funding options you might qualify for, don’t forget to do your due diligence. Don’t just say yes to the first lender willing to offer you financing because you might be missing a better deal just because you were too lazy to do your research. Ask plenty of questions, sort through your viable choices, and make sure you read and understand the fine print. The last thing you need is to place yourself and your franchise business in a compromising situation even before you get it up and running.