Best Of
Franchise financing options include traditional loans, SBA loans and online lenders. Compare these options for your small business.
Opening a franchise gives you the entrepreneur experience — but, as a franchisee, you have an edge.
When you open a franchise storefront, the parent company, or franchisor, sells you the right to its business name, product and brand. The franchisee agreement lasts for a certain length of time, up to two decades, but you can usually renew.
What do you get out of this arrangement? You’re starting a company with an established brand and proven business model. The downsides: You give up control of business decisions to the franchisor, including site approval, design standards and product variation. You also have to foot the startup costs, so finding the best small-business loan or other financing is crucial.
We've outlined the costs of funding a franchise and some good sources of financing, depending on your personal credit, whether you’re just starting out or funding growth.
Our pick for
Businesses one year old or older
As a newer franchise, you’ll want to make sure you have money to cover the basics, such as emergency funding and inventory. OnDeck offers financing to businesses at least a year old.
9.00 - 99.00%
600
Pros
Cons
Qualifications:
Our pick for
Established franchises
12.18 - 36.00%
660
Pros
Cons
Qualifications:
| Lender | Best For | Est. APR | Min. Credit Score | Next Steps |
|---|---|---|---|---|
OnDeck - Online term loan | Best for Businesses one year old or older | 9.00 - 99.00% | 600 | See Your Loan Options
with Fundera by Nerdwallet |
Funding Circle - Online term loan | Best for Established franchises | 12.18 - 36.00% | 660 | See Your Loan Options
with Fundera by Nerdwallet |
Starting a franchise requires many of the same expenses as starting any other brick-and-mortar business, including real estate, equipment and inventory. Franchisees, however, have to pay some unique costs in exchange for training, operating guidelines and marketing from the parent company.
Franchise fee: Most companies charge an upfront fee to start a franchise, paid in a lump sum or installments. The amount varies by company, but it’s typically tens of thousands of dollars and usually is not refundable once a franchisee is accepted.
Royalty and advertising fees: Many franchisors also collect recurring royalty and marketing fees, typically a percentage of a franchisee’s sales. These percentages vary by company.
For specific companies’ franchise fees, refer to the franchise disclosure document, which the Federal Trade Commission requires parent companies give to prospective franchisees. This file also includes information about the franchisor’s financial performance, franchisees’ obligations to the franchisor and financing options available.
As with other small businesses, finding financing for a new franchise can be one of the biggest challenges owners face. Some financing options are unique to franchises, such as franchisor discounts on fees and online financing companies that cater to franchises. General business financing options such as small-business loans and Small Business Administration loans are also available to franchisees.
The franchisor: Some franchisors help finance new franchises by waiving fees or partnering with lenders to help franchisees get loans. If a company offers funding, it’s usually listed on its website and in Section 10 of the franchise disclosure document. Compare the terms of the franchisor’s financing with other options to find the best source of funding.
Traditional loan: Banks and credit unions are a source of financing for all businesses, including franchises. Lenders are more likely to finance franchises of an established brand that has proved successful in a variety of markets. However, you’ll still be subject to the bank’s underwriting standards and lending policies, meaning it will review your net worth and credit history. You also may need to put up collateral, regardless of the brand you’re associated with.
SBA loan: The SBA guarantees several loan products that banks, credit unions and other lenders issue, including 7(a) loans, the most general and commonly used loan type. Franchisees and other small-business owners can apply for SBA loans through their lender.
NerdWallet has an aggregated list of small-business loans you can use to compare loans match to your needs and goals. We gauged factors including lender trustworthiness, market scope and customer experience, and arranged the lenders by categories that include your revenue and how long you’ve been in business.
To recap our selections...