Financing a Franchise

There are three initial sources of franchise financing you should exhaust before you start chasing the “money trail”.

The first, of course, is the franchise company itself. Their position will be one of the following: (1) They offer financing direct to you for a portion of the franchise fees or other investments you must make; (2) They have developed relationships with lenders and can refer you directly to them; or (3) They do not offer financial asistance of any kind. Most franchisors offer either #1 or #2. If your particular franchisor does neither, or if you require additional funding beyond what the franchisor can arrange, there are two other options.

Don’t overlook your family’s ability to possibly help you. It’s a simple process: Either they have it or they don’t; if they do have it, either they’ll work with you or they won’t! You’ll need a business plan to show your family, too.

A third “close-by” potential source is going to be your own bank, dealing with a commercial loan. A curiosity call on your part to the highest ranking bank officer you know will get the ball rolling.

These three – franchisor, family, and your local bank – are the best place for you to start.

The single best other potential source of funding is going to be through the SBA guaranteed loan program. The Small Business Administration has been involved in franchise lending for a number of years… while they don’t make direct loans, they can work with a bank in your area that can loan you the money, and the SBA will guarantee 90% of the loan to the bank should you default. The broad guidelines will be that you will need to have roughly one-third of the total amount you need in cash, and have sufficient assets to secure the loan. Obviously, if your franchise will involve the acquisition of land and the erection of buildings, part of you collateral can be the security of the real estate. Two million dollars is the largest guaranteed loan so far under the SBA program.

The SBA has a great “answer desk” with pre-recorded information on numerous topics that can help you. The phone number is 1-800-U-ASK-SBA (800-827-5722). Or, you can write or email them at:

Look in your Yellow Pages for the SBA District Office nearest you, or use the SBA interactive map: http://www.sba.gov/localresources/

SBIC’s or Small Business Investment Companies are private firms licensed by the SBA to make equity investments and long term credit available to small businesses that qualify. Write to the National Association of Small Business Investment Companies at:

Many leasing companies nationwide will structure leases for the equipment, fixtures, and furniture you may need to start your franchise. Consult your phone book under Leasing Service for information.

Small Business Development Centers, usually found on college campuses can be a wealth of information on financing assistance. Also, don’t overlook SCORE, retired business executives who volunteer to help small businesses.

There may also exist individual investors in your area, (sometimes referred to as “angels”), who may be willing to make you a loan or take an equity position in your franchise. Full business partnerships may also be a possibility for you. If you require a partner to launch your franchise operation, make certain you and the partner see eye to eye on everything! Partnerships are sometimes difficult, and it’s critical that the two of you not just get along, but also that each of you bring individual strengths and a comparable work ethic to the table.

In summation, financing may turn out to be your toughest battle. But, if you’ve got a dream, pursue it… if you can visualize it, you can achieve it.