How to Finance a Franchise Business

Being your own boss and securing the funding to do so is not as far out of reach as you may think. Here are your main options for financing a franchise:

  • Franchisor financing
  • Commercial bank loans
  • SBA loans
  • Alternative lenders
  • 401K rollovers
  • Crowdfunding
  • Friends-and-family loans

Yes, there’s more than one way to buy a franchise! Below, we’ll share the details about all 7 of these options.

7 Types of Franchise Funding

1. Franchisor Financing

Ask your prospective franchisor if they offer tailored financing plans for new franchisees. A franchisor might do this through a lender partnership or with capital from the company itself. This can make the startup process smoother for a franchisee, because financing plans from the franchisor will account for the franchise fee and accurate funds for items like equipment.

2. Commercial Bank Loans

This type of loan gives you the money up front, and you pay it back monthly (with interest) over time. Talk to your personal financial institution about this option. Lenders are more likely to approve loans for franchises than for new, independent small businesses. This is because franchises usually carry less risk, as they likely have a proven business model and brand recognition.

3. Small Business Administration Loans

SBA loans operate similarly to commercial bank loans but with lower interest rates and longer repayment timelines, due to the U.S. Small Business Administration guaranteeing a portion of the loan amount.

4. Alternative Lenders

Loans from alternative lenders operate like commercial bank loans as well, but they include some additional terms that will cost you. These loans may be smaller and have shorter repayment periods. Many small business owners pursue alternative franchise funding if they are unable to secure a traditional loan. Check out this list of reputable alternative lenders at Business News Daily.

5. Investment Account Rollovers

Rollovers as Business Startups (ROBS) is an option for franchise funding that is often overlooked. If you have an inactive IRA or 401K that isn’t growing as you’d like it to, you could roll it over to fund your career growth. This option for financing a franchise is typically used in conjunction with an SBA loan.

6. Crowdfunding

This type of franchise funding allows small business owners to reach out to a community for support through crowdfunding pages.

7. Friends-and-Family Loans

Another common way to finance your franchise is with a friends-and-family loan. You and your lender (a family member or friend you know and trust) can decide on the loan terms. Just make sure you create a contract. The terms should ideally include a lower interest rate and longer payback period than a commercial bank loan.

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How to Buy a Franchise

No matter the type of franchise financing you choose, here’s how to buy a franchise after choosing the opportunity you want. Keep in mind that a great franchisor will help you through these steps—or even take care of some of them.

  • Find out how much money you need to borrow.
  • Create a detailed business plan based on market research.
  • Print your official credit history.
  • Compile your personal financial information (income, assets, bills, and debts).
  • Research lending and financing options.
  • Schedule an appoint with a loan officer at your financial institution.
  • Seek alternative franchise funding if a commercial bank loan or SBA loan is not possible.
  • Carefully review documents before signing.

Finance Your Franchise with Neighborly®

When you open a home service franchise with Neighborly, you have an extensive network of experts to help you successfully fund and launch your business. Your corporate office team and franchise business coach walk you through every step of the franchising process, including financing your franchise. What’s better than that? After you kick off, we provide ongoing training and support throughout the life of your business.

If you’re interested in the home service industry or you’re already a part of it, let us help you fulfill your dream of owning your own franchise with a well-known brand.

Contact Neighborly online for more information, or call (888) 387-8018.

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