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Need Financing to Buy or Grow a Franchise? New Franchise Industry Programs Can Help

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Need Financing to Buy or Grow a Franchise? New Franchise Industry Programs Can Help

By Caron_Beesley, Contributor
Published: March 18, 2013 Updated: March 18, 2013

The franchise industry, like all businesses, was not immune to the economic crisis of 2008 and the ensuing credit crunch. But the vital signs of a recovery are there. According to the International Franchise Association (IFA), many of the country’s business sectors currently starting to show growth mirror those sectors expected to be the leading drivers of employment in franchising this year. These include food service, health care, hospitality and construction—all sectors with a high concentration of franchise businesses.

“For those Americans dealing with long-term unemployment or a lack of growth opportunities in their current jobs, franchise ownership offers a viable way to be in business for yourself, but not by yourself,” said IFA President & CEO Steve Caldeira.

The Franchise Industry Tackles the Credit Crunch Head-on

Despite these indicators, financing remains a problem for potential franchise owners.  According to Entrepreneur magazine (January 2013), there’s still an 18 percent lending shortfall in the franchising industry. In a bid to boost franchise ownership, many franchisors are taking matters into their own hands and offering financing programs of their own. Meineke, The UPS Store, Gold’s Gym, Masasge Envy and Instant Imprints are just a few examples of franchisors now offering financing to qualifying first-time and multi-store franchise owners.

Want to know more? IFA President and CEO, Steve Caldeira offers the following tips (courtesy of Entrepreneur magazine) to would-be or existing franchise owners looking for an alternative to traditional financing options.

Which Franchisors Are Offering Financing Programs?

Approximately 75 to 100 franchisors are offering or working on offering creative financing programs for start-up franchise owners or those looking to expand. Programs range from zero-percent financing for a limited-term, lower license fees, reduced royalties and minority stake ownership by franchisors in multi-unit outlets. Each brand has its own offering, so down payments and collateral requirements will vary.

In addition, the franchise industry is also experiencing a growth in companies dedicated to helping franchise owners secure financing. Two such firms are BoeFly (which matches borrowers to lenders online) and Franchise America Finance (who provides custom lending solutions for franchisees and works with franchisors such as The UPS Store, Popeyes, and Jersey Mike’s).

Always Do Your Franchise and Financing Due Diligence

If you are new to franchise ownership, be sure to do your research and due diligence about the franchise system you’re interested in (get tips on that process here). Study the Franchise Disclosure Document (required by law) and speak to other franchisees about the brand and the financing program on offer. Next, try to understand what your financial responsibilities as a franchise owner will be. This blog offers some pointers on this: Buying a Franchise – How to Determine What it’s Going to Cost You.

Other Franchise Financing Options

Many banks and credit unions offer financing for franchise purchases, so be sure to compare any franchisor lending rates and terms with these. When you approach a bank, be prepared to disclose all your financial information. While your credit rating is important, you’ll also need to provide a personal financial statement, copies of tax returns and information about the source of your down payment funds.

You should also be aware that your choice of franchise will influence a bank’s decision to fund you. Franchises with strong brand names, a track record of consistent profits and cash flow—plus an ability to perform well across a variety of diverse locations—are going to stand you in good stead when you meet with your bank manager.

If your bank is hesitant about a particular franchise system’s performance, or your finances aren’t as strong as they could be, you might want to consider an SBA loan. SBA doesn’t lend to business owners directly; it provides a repayment guarantee to banks and lenders for money they lend to small businesses, making it less risky for the banks. Use this search tool to find the right SBA loan for you.

 

About the Author:

Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

Comments:

Another financing source is funds in your 401k, IRA or other retirement account. If structured properly, this strategy will not be subject to taxes or penalties. Moreover, the funds may help you secure an SBA loan.
Great article. I personally think that franchises are the main business type nowadays. If you need help getting a loan, please visit This post was edited to remove a link. Please review our Community Best Practices for more information about how best to participate in our online discussions. Thank you.
5 more tips to fellow SBA subscribers on opening up and expanding business abroad. 1) Be aware of US Federal regulations for doing business overseas. Available info sources at SBA, Dept of Commerce, etc. 2) Be aware of business regulations in destination country. Is it under any embargoes or political/trade sanctions? Countries under US trade and other sanctions do not advertise the fact. They will do anything to get your business, and the overseas seller of business might not volunteer the info, or may be ignorant of political repercussions. 3) Do you require visas to get there? Or do you conduct business from the comfort of your office in the West? 4) Be aware of What constitutes illegal business overseas. What may appear to be commissions could be serious breaches via corruption from govt officials.5) Do not hesitate to consult with local independent consultants as those subscribing to this valuable SBA resource. (This post was edited to remove a link. Please review our Community Best Practices http://www.sba.gov/community for more information about how best to participate in our online discussions. Thank you.)
Finding individuals to partner with on buying, expanding and successfully operating a franchise with is also another good option that should be considered.
I am looking to obtain Elements franchise I need a advice how to get a money to operate that busies. Can any boy help me with right advice.
  As mentioned above, check out BoeFly and Franchise America Finance. Other financing options include You may also want to look into banks and credit unions or an SBA loan. 
Franchising has always been an important avenue to self-employment and small business ownership, especially for folks who are not inherent entrepreneurs and for whom business start up and even organizing ongoing operations can be a challenge. Over the last three or four years, it has become even more important as many middle-class middle-aged middle managers have been laid off from their jobs and desperately looking for a new way to earn a living. For them franchising can be an ideal solution. Demobilized young veterans and women are two additional segments where franchising can be an ideal solution. Finding the right franchise can be a serious challenge for anyone. FranNet offers free franchise counseling to help individuals understand franchising options, determine a franchising is right for them, and then finding the right franchise. Logging on to the FranNet website allows individuals to connect with a counselor in their local area to schedule a free counseling session. Additional financing options include using a 401k, but it is important to make sure that it is configured to allow investment in a small business. Otherwise, you may be subject to as much as 1/3 loss in the value of the funds removed from the 401k in tax recovery and penalties. For veterans, the Patriot Express loan may be a possible source of funding. Check with your local SBA office or bank for details. The International Franchise Association also has special financing programs to help support veterans. Women seeking financing may be able to explore specialized localized financing programs. These can be found in a “Free Help” nonprofit online resource center, choose your state and then choose the Free Help category that fits your need. Resources are cross indexed by type of help and by local geography so users can find the programs in their local areas most suited to provide the help they need. (This post was edited to remove a link. Please review our Community Best Practices http://www.sba.gov/community for more information about how best to participate in our online discussions. Thank you.)  
I would like to start a Little Caesar's Franchise in my community. I have contacted Little Caesar's and inquired about any financial help a month ago. I was told I needed $30,000 to start. How can I get any financial help or assistance with the SBA? Please help. Thank you.
Veterans Business Services can support you with multiple financing resources please take the time to visit us and we can support you with finding the right resources.
Hi there, SBA doesn’t lend to business owners directly; it provides a repayment guarantee to banks and lenders for money they lend to small businesses, making it less risky for the banks. Use this search tool to find the right SBA loan for you: http://www.sba.gov/content/find-small-business-loans

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