How to Finance your Franchise Business

You have what it takes to run a business franchise, but where do you get the start-up funds? Here are some ideas.

1. Before you start looking for funding sources, make sure you know how much you will need. You should include all franchise fees to open the business, royalty payments to the franchisor, and advertising fees the franchisor may charge you.

2. Will the franchisor provide financing? Most don’t, but its worth asking and looking around. Subway will help finance franchise fees and start-up costs. 7 Eleven will help finance inventory, accounts receivable, and payroll.

3. Go to your bank. These days its hard to get a bank to finance a franchise, but if you have good credit, it might be possible. You may have to settle for a second loan on your house.

4. Check out the Small Business Administration’s franchise registry, The SBA helps reduce the risk to banks for small business loans. If the franchise you are interested in buying is affiliated with this program, it may be easier to find bank financing.

5. Ask your relatives.

6. Third party financing. There are several companies that have provided franchise financing, including GE Capital, Textron, Banco Popular, and Edlo Leasing. You might get more leads on third party funding from a franchise broker. (See link for related article at the bottom of this page.)

7. Venture capital/angel investor. Can you find an outside person or group of investors willing to invest in your franchise? Although this may be a more expensive way to finance your business and could give strangers a share in your enterprise, it may be your only way to buy a franchise.


8. Buy a low-cost franchise. There are lots out there available for under $50,000. Check out a reputable source such as entreprenuer.com to evaluate these opportunities.

9. Check with your financial advisor to see if it is possible for you to finance your franchise as part of a “self-directed IRA.” Such an arrangement would use your IRA funds to start up a franchise business. This would need to be done carefully so you do not violate IRA withdrawal rules.

10. The last option is borrowing from your IRA or pension funds. Given the risk of franchise businesses, this option should be avoided.