Franchise Loans for Small Business (SBA)

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Many commercial space owners get their first break by basing their business plan around buying and opening a new franchise, such as real estate like a chain restaurant, a hair salon, or a sporting goods store. Even some medical practices and building contractors have gotten a leg up on owning their franchise businesses this way. These real estate establishments provide a great platform to learn if owning and opening a franchise is right for you. After all, at first, the franchisor will often help jump-start an offshoot by waiving fees and even partnering with commercial bank lenders to assist new owners with a small business loan for their down payment funding and receiving franchise SBA loan financing. Years later, when the franchisee wishes to expand or upgrade, very often they find that due to the nature of their enterprises, franchise fees, franchise loans, franchise SBA loans, funding, and other franchise financing options may be few and far between.

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Why Do You Need a Franchise Loan?

Below are the most common reasons franchises acquire capital SBA loan options for their company:

  • Working Capital
  • Equipment
  • Company Expansion
  • Cash Flow shortages
  • Emergencies
  • Advertising

The 8 Best Funding Franchise Loan Options for Small Businesses

Small Business Administration (SBA) Loans

The Small Business Administration (SBA) provides financing programs like SBA 504 and 7 a loans, guidelines, and small business loan guarantees to approved lenders for small business funding. The mission of the Small Business Administration (SBA) is to help Americans start, build, and grow their franchise successfully. The Small Business Administration (SBA) doesn’t fall under the “lenders” category. SBA provides guarantees that give approved lenders the ability and 7 a loans funding options to take on the risk of small business loans lending under SBA terms that they would not ordinarily make sure of on their own. SBA loans are highly sought after but unfortunately, have low approval percentage due to the requirements and guidelines.

 

Product Overview

SBA Annual Percentage: Interest rates starting at 6.50%
SBA Repayment terms: 2-to-25-year term loan amount
SBA Fees: Origination fees 0% to 3%
SBA Loan Payments: Fixed monthly payments
SBA Financial Standing: Good to excellent credit score preferred
Documentation: Full documentation including application, 6 months company bank statements, two years annual returns, year-to-date Profit & Loss, and balance sheet. More documents may be requested upon review
Processing Time: 1 week to up to a month depending on application volumes or other economic conditions

 

Benefits and Best Uses of SBA Loans

SBA loans offer small business owners a prime rate, low fees, and long term duration of offer financing. A small franchise can acquire more capital with affordable monthly payments or franchise fees when durations of repayment exceed 2 years. SBA loans are used primarily for real estate loans and real expansion and growth as well as funding long-term projects.

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Small Business Administration (SBA) Loans

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Long Term Loans

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A franchise loan option that is long term is defined by a duration of greater than two years. The features include a fixed lump sum up from, over a fixed period of time, with principal & interest charges. Usually, franchise business owners do not use it for profitability or working capital but predominantly for expansion and growth or to finance large long term franchise fee projects.

 

Product Overview

Annual Percentage: Interest rates starting at 6.50%
Loan Terms: 2-to-10-year term loan
Fees: Origination fees 0% to 3%
Loan Payments: Monthly or bi-weekly payments
Financial Standing: All credit history considered; good to excellent credit score preferred
Documentation: Standard documentation including company bank statements, financial statements, tax returns
Processing Time: 3 days to a week

 

Benefits and Best Uses of Long Term Loans for Businesses

A franchise owner uses a long term business loan because of the length of time of repayment and the affordable monthly payments. A franchise loan SBA that is long term supports the growth and expansion of a franchise or large long term projects or work orders.

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Long Term Loans

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Business Line of Credit (LOC)

A business LOC is a revolving line of credit. It is a flexible franchise financing option that allows owners to draw funds on-demand or make purchases. A business line of credit charges a principal & interest rate. Business lines of credit do have a set limit that cannot be exceeded without approval.

 

Product Overview

Rates: Interest starting at 6.50% or treasury index plus 1% to 2.5%
Loan Terms: Revolving line of credit that is renewed semi-annually or annually
Fees: Origination fees 0% to 3%
Loan Payments: Monthly, bi-weekly, or weekly payments
Financial Standing: All history considered; good to excellent credit score preferred
Documentation: Standard documentation including 1-page application and 3 months of bank statements. At times, financials will be required depending on the set limit
Processing Time: Same day to 1 to 5 days

 

Benefits and Best Uses of Business Line of Credit

Flexibility is the number one reason why a business owner would prefer a line of credit. The ability to draw funds at any time up to the set limit remains the #1 reason for its popularity. This function allows franchise owners the ability to respond to working capital needs or emergencies in real-time.

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Business Line of Credit (LOC)

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Business Credit Cards

Business credit cards function just like personal credit cards. They are revolving credit lines that charge a principal & interest rate with a credit limit. A card is issued that can be used for making payments or purchases. Small business owners commonly utilize company credit cards in conjunction with other company loan products like an SBA loan.

 

Product Overview

Rates: Introductory starting at 0% up to 28.99% principal & interest
Loan Terms: Open revolving line of credit with a credit limit
Fees: Annual fees $0 to $500
Loan Payments: Flexible monthly payments
Financial Standing: Must have good to excellent credit score and lengthy overall history
Documentation: No documentation for smaller amounts from $3,000 up to $15,000; larger credit limits may require documentation
Processing Time: Instant approval to same day available

 

Benefits and Best Uses of Business Credit Cards

A franchise owner chooses to use company credit cards because of the convenience of being able to draw money, make payments, or make purchases using a card that can be used 24/7.

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Short Term Business Loans

Most franchise owners choose a working capital franchise loan when commercial bank loan financing is not an option. These loans feature a lump loan amount offered upfront with a fixed payback amount calculated using a factor rate over a short time frame defined as a business loan that is typically repaid within 6 to 18 months. Rates are not principal & interest. A small business owner might choose an SBA franchise loan that is short term because of the reduced documentation requirements and credit tolerances that are laxer than commercial bank loans for businesses. A working capital SBA franchise loan has higher approval percentages than traditional funding options.

 

Product Overview

Rates: Factor range from 1.09% up to 1.45%
Loan Terms: 6-to-18-month term loan (typically 12 months or less)
Fees: Origination fees 0% to 5%
Loan Payments: Weekly, bi-weekly and in some cases, daily Monday-Friday
Financial Standing: All scores will be considered
Documentation: Reduced documentation including 1-page application and 3 months bank statements
Processing Time: Same day to 24 to 48 hours

 

Benefits and Best Uses of Short Term Loans for Businesses

Short term business financing is a great alternative for franchises when approval for traditional loans for businesses from a traditional bank is not available. The main reason franchise owners choose this product is for working capital and profitability.

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Short Term Business Loans

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Business Cash Advance (BCA)

Business Cash Advance is also known as Purchase of Future Sales Agreement. A BCA advances future sales at a discount to a franchise. The company is responsible for paying back a fixed payback amount known as the specified amount which is greater than the amount that was advanced to the business. This difference between the advance amount and the payback amount is called the “Factor Rate or cost” which is a fixed cost. The BCA is repaid by taking a fixed percentage (called the specified percentage) of future overall sales deposits. The payments are collected by an ACH fixed daily or weekly payment deducted from a business bank account based on the specified percentage of future sales. Reconciliation can occur at the conclusion of every month if the fixed payments taken are more than the set future percentage of sales of a franchise. A request for a refund back to the business for an overpayment can be made so that the set specified percentage of sales collected for the business matches the sales volumes. Repayment continues until the payback amount is paid back in full. There is no term limit with advances as the fixed payback percentage ever changes due to fluctuating future sales.

 

Product Overview

Rates: Factor range from 1.09% up to 1.45%
Loan Terms: No term loan limits; payments continue until paid in full based on specified percentage collection method and are dependent on future sales
Fees: Origination fees 0% to 5%
Loan Payments: Weekly or daily Monday-Friday Fixed ACH payments
Financial Standing: All considered; ranging from poor to excellent credit score
Documentation: Reduced documentation including 1-page application and 3 months bank statements
Processing Time: Same day to 24 to 48 hours

 

Benefits and Best Uses of Business Cash Advance

Franchise owners turn to a business cash advance when traditional or short term loans for businesses are not available. Funds are typically used for working capital to improve profitability.

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Business Cash Advance (BCA)

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Merchant Cash Advance (MCA)

A Merchant Cash Advance is also known as a Purchase of Future Sales Agreement. MCA’s are very similar to BCA’s but the biggest difference is the repayment process is connected to the future credit card sales instead of overall sales. MCA’s take a set percentage of future credit card sales at the time of batch of credit cards until the advance is paid back in full. Franchises who accept a lot of credit cards as payment find this valuable when they have fluctuating sales and don’t want to be locked into a fixed payment that could negatively impact capital or margins of profit if sales decline or fluctuate.

 

Product Overview

Rates: Factor range from 1.09% up to 1.45%
Loan Terms: No term limits (payoff depends on future sales)
Fees: Origination fees 0% to 3%
Loan Payments: Set a fixed percentage of future card sales withdrawn at the time of batch of sales
Financial Standing: Poor, fair, good, or excellent credit scores considered
Documentation: Reduced documentation including 1-page application, 3 months processing statements, and 3 months bank statements
Processing Time: Same day to 24 to 48 hours

 

Benefits and Best Uses of Merchant Cash Advance

Franchise owners utilize merchant cash advance when other more traditional business funding is not available. Franchise owners who accept payment from a lot of their sales by charge card like the flexibility of the repayment by the percentage of sales to better control available means and profit margins versus a fixed payment. Franchise owners use merchant cash advance mostly for working capital and profitability.

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Merchant Cash Advance (MCA)

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Franchise Financing for Equipment

Some franchises require a lot of equipment for their businesses to function properly. Equipment financing provides for the purchase of equipment by securing the equipment as collateral. Credit evaluation requires the owner to have a very good to excellent rating to acquire financing for equipment but there is limited paperwork needed to get approved.

 

Product Overview

Rates: Factor range from 1.09% up to 1.45%
Loan Terms: No term limits; based on future sales
Fees: Origination fees 0% to 3%
Loan Payments: Weekly or daily Monday-Friday Fixed ACH payments
Financial Standing: All ratings considered; good credit score is preferred
Documentation: Low documentation including 1-page Application and invoice for equipment
Processing Time: Same day up to 3 days

 

Benefits and Best Uses of Equipment Financing

Simply put, financing equipment allows you to secure loans or a lease for equipment that lenders have as security. It can only be used for the purchase of equipment for a franchise business.

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Franchise Financing for Equipment

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Frequently Asked Questions

It is not difficult to obtain business financing for franchises. Lenders like franchises because they typically have requirements to become a franchise that is stringent and the company that manages the franchise also has a hand in the success of the company. There are many options available for franchise-based business.

Franchises have many financing options for franchise owners with a bad history. Keep in mind that products and terms from lenders will vary depending on how bad the use is, financial condition, and most recent working capital.

Company charge cards are the only option where in most cases lenders don’t require documents unless you’re applying for larger amounts of money. Other company funding products have less or reduced documentation requirements that may work for you and your franchise. As a franchise owner, you need to recognize that the less documentation you provide, the more likely lenders terms will be less favorable. Compare and shop business funding options.

Getting start-up financing can be difficult and challenging. Your search will need to include non-traditional means to raise capital to start a company like private sources or lenders when searching for start-up capital. The SBA can help you get financing like an SBA loan for a start-up but you must have capital and collateral as well.

Types of Franchise Financing AdvancePoint Capital Funds

If you see the industry, but not your specific industry, we can still provide you small business loan funding. Not all industries are listed, so don’t hesitate to contact AdvancePoint Capital to find out more information.

Restaurants

  • McDonald’s
  • Kentucky Fried Chicken (KFC)
  • Pizza Hut
  • Burger King
  • Domino’s Pizza
  • Taco Bell
  • Wendy’s
  • Marco’s Pizza
  • Arby’s
  • IHOP
  • Papa John’s Pizza
  • Bojangles
  • Popeyes Louisiana Kitchen
  • Carl Jrs.
  • Long John Silvers
  • Boston Pizza
  • Hardee’s
  • Round Table Pizza
  • Red Robin
  • Johnny Rockets
  • Wingstop
  • Sonic Drive-In
  • Saladworks
  • Famous Dave’s

Gifts

  • Edible Arrangements

Insurance Agencies

  • Allstate
  • State Farm

Carpet Cleaning

  • Chem-Dry Carpet Cleaning

Lawn Care

  • Weed Man Lawn Care

Education

  • The Tutoring Center

Mailing & Shipping

  • The UPS Store

Senior Home Care

  • Visiting Angels
  • Senior Helpers
  • Interim HealthCare
  • Comfort Keepers
  • Home Instead Senior Care
  • HomeWell Care Services

Automotive Repair

  • AAMCO
  • Snap-On Tools
  • Jiffy Lube
  • Midas
  • CARSTAR
  • Maaco
  • Matco Tools
  • Meineke Car Care Center
  • Novus Glass

Child Education

  • Mathnasium

Hair & Beauty Salons

  • Sports Clips
  • Great Clips

Pet Stores

  • Petland
  • Wag N’ Wash
  • Pet Supplies Plus
  • Dog Training Elite
  • The Healthy Animal

Plumbing

  • Mr. Rooter
  • 1-800-Plumber

Coffee Shops

  • Dunkin’ Donuts
  • Krispy Kreme
  • Gloria Jean’s Coffees
  • Coffee Beanery
  • Daylight Donuts
  • Scooter’s Coffee

Sandwich & Bagel Shops

  • Subway
  • Jimmy Johns
  • Jersey Mikes
  • Firehouse Subs

Sandwich & Bagel Shops

  • Baskin-Robbins
  • Dairy Queen
  • Ben & Jerry’s
  • Kona Ice
  • Smoothie King
  • Planet Smoothie
  • Cold Stone Creamery
  • Pinkberry
  • Buster’s Real Ice Cream
  •  

Convenience Stores

  • 7-Eleven
  • Cumberland Farms

Lodging

  • Choice Hotels

Home Improvement

  • Ace Hardware
  • Budget Blinds
  • Mr. Handyman

Medical Billing

  • American Business Systems

Printer Copying & Sign

  • Signarama
  • Minuteman Press
  • FastSigns

Commercial Cleaning

  • JAN-PRO Cleaning Systems
  • PuroClean
  • ServiceMaster Clean

Restoration

  • Paul Davis Restoration
  • SERVPRO
  • Rainbow International Restoration

Wellness Products & Services

  • GNC Live Well

Gyms

  • Orangetheory Fitness
  • Anytime Fitness
  • UFC GYM
  • Fit Body Boot Camp

House Cleaning

  • Merry Maids
  • The Maids
  • Oxi Fresh Carpet Cleaning
  • ChemDry

Employment & Staffing

  • Express Employment Professionals

The Bottom Line: Advice, Tips, Warnings About Loans for Business Franchises

Franchise owners should always begin the process with what is the purpose and use of the money they are trying to acquire for their franchise. Have you considered what shortcomings may exist in getting your franchise approved? (Credit Issues, Bank Statement cash flow issues, time in the industry, financial statement issues).

Business financing is significantly different than consumer financing and requires a deep dive into different funding products when choosing the right option for your franchise. Evaluate the cost versus benefit when choosing funding for your business plan and business model. 

AdvancePoint Capital has been very successful in helping franchise owners navigate through the search in an easy and painless way without wasting time or more importantly your hard-earned money. AdvancePoint Capital has a large marketplace with many different product offerings and financing solutions, unlike Funding Circle. As we always say at AdvancePoint Capital, compare, shop and you will always save!

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