Franchise Business Loan

Get access to revolving funds when you need it most

Ezra Cabrera

August 30, 2021

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Franchise Loans

Franchise Loans for Your Franchise Business

Franchising a business doesn’t guarantee success. In fact, franchise companies are more prone to cash flow shortages due to a number of fees they need to pay. Aside from operational expenses and business investments, a franchisee must adhere to the fee guidelines set by the franchisor. With fees ranging from a few hundred dollars to thousands, it’s no wonder why franchisees often turn to franchise business loans for help.

Royalty and advertising fees are often taken from your weekly or monthly sales and earnings. Sometimes, franchisers must pay for their employees to undergo training programs that are required by the franchisor. And in some cases, franchisors might require local advertising on top of standard advertising fees.

Franchisees must also pay a franchise fee before they even own the business. On top of all of these mandatory expenses there are also other inevitable business expenses such as new equipment or furniture, and payroll. These costs can easily pile up, making it difficult to earn a profit or save money.

SMB Compass wants your franchise business to thrive in today’s competitive market. When you work with us, we will help you find the right financing product that positions your franchise up for success.

Many franchisers assist franchisees in establishing their businesses by providing financial funding. However, franchisees still require financing to meet their working capital requirements. Traditional Indian banks usually do not offer franchise business loans. On the other hand, franchisees can always get small business loans for franchises from several lending institutions to cover their working capital needs. They can even seek a variety of small business loans for franchises. 

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use of Franchise Business Loan

4 Ways to Utilize a Franchise Business Loan

Business owners know that finding the right business to franchise is challenging. However, finding the right small business financing is even more challenging. SMB Compass knows that franchises need working capital to succeed. We believe in and are dedicated to your success. That’s why we source out unbeatable business loans for you.

Here are four ways on how you can use a small business loan to generate a maximum ROI:

Franchise Fee Payment

Most businesses charge an upfront fee prior opening a franchise. The amount of the fee varies depending on the type of business, but the rate can often run into the tens of thousands of dollars and is usually nonrefundable. For example, Jamba Juice charges a fee of $25,000 per store, and Cruise Planners charges $10,995.

Royalty and Marketing Fees

Other than franchise fees, a franchisor will often also collect royalty and marketing fees. These fees are usually based on a percentage of the franchisee’s sales, with amounts varying by company. For instance, Subway franchises pays about 8% per week of sales in royalties, along with a 4.5% per week fee for advertising.

Additional Working Capital

Most businesses apply for a loan to increase their working capital. Seasonal sales fluctuations, cash flow problems, and business expansion are just a few of the many reasons why franchisees apply for a business loan. You might not know how much money you need, but as your business grows, you’ll definitely need extra working capital to run your business.

Inventory

If you are starting a retail franchise, you’ll need to stock up on inventory. While every franchisors business is different, you generally are required to purchase around $20,000 to $150,000 worth of inventory in order to get started.

Top 4 Franchise Loan Programs for Your Franchise

Top 4 Franchise Loan
SMB Compass will walk you through our personalized selection of franchise business loans. Whether you need to pay for franchising fees or add working capital, our financial advisors will find the best small business funding source for you. Here are some of our popular loans for franchises:

SBA 7(a) Loans

The Small Business Administration encourages lenders to offer loans to small businesses by pledging 85% of the loan. This means that, compared to bank loans, an SBA loan is more accessible for small business owners.

This type of program often offers more attractive terms compared to traditional loans, but before you can qualify for SBA funding, the Small Business Administration has to approve your franchise and list it on the Franchise Directory.

Otherwise, you won’t be able to qualify for an SBA loan. To get listed on the Franchise Directory, the franchisor must submit their Disclosure Document (FDD) to the Small Business Administration for review.

Business Line of Credit

In a business line of credit, lenders will determine a maximum credit line, which you can withdraw funds from whenever needed. There are no interest charges until the funds are withdrawn, and you only need to pay back the money you’ve used.

It’s the lenders who determine the terms and the rate of interest associated with your loan after checking your personal and business credit, as well as your cash flow.

Multi-Year Term Loan

With a multi-year term loan, franchisees can pay back the loan within two to five years. This financing option has affordable monthly payments, yet gives you more than enough cash flow to cover business expenses. You must have strong business credit, good historical cash flow, and good personal credit in order to qualify.

Bridge Loan

If you’re looking for a short-term loan to fund immediate financing needs, another type of lending product to consider is a bridge loan. This type of funding enables you to seize new business opportunities, fill in cash flow gaps, and pay for unexpected business expenses. Instead of using your personal savings or passing on attractive business opportunities, bridge loans can provide you with funds within 24 hours.

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FAQ About Franchise Business Loans

What is a franchise business loan?

A franchise business loan is the financing necessary for a franchisee to manage cash flow and operate effectively. Running a business has its benefits but it can also be costly with all the added fees and overhead expenses. It’s also common for franchisees to experience cash flow shortages.

How do you qualify for a franchise business loan?

The qualifications for financing for a franchise business can vary depending on the size and type of financing. For example, to qualify for a business line of credit or bridge loan, the most important factors are cash flow and length of time in business. On the other hand, SBA loans and equipment financing require that the business owner has strong personal credit, positive cash flow, and appropriate collateral.

How long does the application process take for a franchise business loan?

The length of the application process for financing varies depending on the funding program. Lines of credits and bridges loans required limited documentation and the application process is very quick. Other programs such as SBA loans, asset-based loans, and equipment financing will require a more extensive application process.

How would you use a franchise business loan?

Franchisees use business loans to properly manage their cash flow with all the upfront expenses and fees that come along with owning a franchise. There are many operational costs and without having the proper financing in place, many of these businesses cannot operate efficiently. Fortunately, business loans provide the extra working capital that cover expenses such as equipment, training, payroll, and expansion.

Is collateral required for a franchise business loan?

Collateral is necessary for long-term financing such as is the case with an SBA loan, equipment loan, and asset-based loan. Typically, financing such as business lines of credit and bridge loans will not require collateral unless it is a significant dollar amount.

What are the different franchise business loan options?

There are a variety of different financing options that franchisees can take advantage of that will help their business.

Business lines of credit and bridge loans are commonly used to handle day-to-day operations, while SBA loans are used to refinance any existing debt as well as being used for the expansion of a business.

Learn About Your Financing Options

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