Opening a franchise can be a smart choice for an aspiring entrepreneur. Becoming a franchise owner gives you the flexibility of owning your own business with the added security of being part of an established brand. However, as with owning any new business, startup costs can be high and you may require infusions of capital if you encounter slim times. Franchisees must also pay a franchise fee when opening a new franchise, as well as ongoing royalty fees.
Assuming you don’t have upwards of $100,000 set aside, how can you get the capital you need to open a franchise, purchase an existing franchise, or keep your franchise business functioning optimally?
Most franchisees will have to get a business loan at some point. Fortunately, compared to independent small business owners, franchisees have traditionally had an easier time securing financing from banks — including loans backed by the SBA (Small Business Administration). But bank loans and SBA loans are still not easy to get even for franchise businesses, and the application and approval process can be prohibitively long for a lot of franchisees in need of quick capital. Some franchisors offer their own financing programs, but the practice is far from widespread.
For these reasons, many franchise owners are turning to the alternative lending space. Online lenders are generally more lenient in their borrower requirements and they also offer a much faster time to funding than traditional bank loans, often depositing funds in your account within a week of receiving your application.
What follows are some of the best online loans for franchise businesses. Note that the order in which I’m presenting these lenders does not reflect their ranking; they’re all pretty great, and the best choice for you will depend on your business’s particular requirements.
1. ApplePie Capital
ApplePie Capital (see our review) is an online lender that specializes in franchise financing.Â Founded in 2014, ApplePie was one of the first online lenders to offer franchise financing. After recently acquiring another franchise lender, ApplePie has expanded its offering to include SBA-backed loans, equipment loans, and conventional loans, in addition to its original “core” 3-7 year loan.
ApplePie currently has partnerships with 42 franchises, such as 7 Eleven, Dunkinâ Donuts, Jimmy Johnâs Pizza, and Wetzelâs Pretzels. Other franchise brands can get loans through ApplePie, though the process might take a little longer. ApplePie offers loans for both new and existing franchises, including franchise startup loans, loans to purchase an existing franchise, franchise equipment loans, franchise refinancing loans, and more.
Some things we like about ApplePie Capital include reasonable interest rates, relaxed borrower qualifications, and easy application. Read our ApplePie Capital review to learn more about their online franchise loans.
2. Funding Circle
Funding Circle (see our review) was established in 2010 when one of its founders started a gym franchise and realized how difficult it was to obtain funding. Today, Funding Circle has numerous franchise partners across the US, including Papa John’s, Pinkberry, Quiznos, and many others.
Offering medium-term installment loans with repayment periods as long as 5 years, Funding Circle is a lending partner for established franchisees with a strong credit history. Specifically, you’ll need to own a franchise at least two years old and have a credit score of at least 620. For qualified applicants, Funding Circle has the advantages of offering faster funding than a bank loan would, as well as offering relatively low rates and fees.
While Funding Circle’s application process takes longer than that of some other online lenders, it is still much quicker and easier than getting a bank loan.Â Funding Circle is not suitable for aspiring franchisees who haven’t opened up shop yet, but it should definitely be on your short list if you have an existing franchise.
Read our Funding Circle review to read up on this franchise loans provider.
SmartBiz (see our review) is a viable online loan option for franchise owners that want the security and low-interest rates of an SBA-backed loan, but with the ease and speed of an online loan. SmartBiz is the #1 marketplace forÂ SBA 7(a) small business loans online, offering an SBA/online loan hybrid with low interest rates and long-term repayment terms. However, this lender is only an option for established franchises — you’ll need at least 2 years’ time in business to get a working capital or debt refinancing loan, and 3 years to be eligible for a commercial real estate loan.
SmartBiz does not originate loans. Rather, it is a service that matches business owners with SBA-preferred banks. If you don’t qualify for an SBA loan, SmartBiz can match you with one of its non-SBA partners to secure a loan. While SBA loans have the lowest interest rates and longest repayment terms — up to 10 years for most loans — you might still be able to get a medium-term non-SBA loan with an interest rate as low as 7.99% through SmartBiz.
We love this lender for their sterling reputation, excellent customer support, and reasonable terms and rates. But again, you’ll need to already have an established franchise to qualify, as well as good credit. This loan also takes longer to apply for (and receive) compared to most other online loans, and it can potentially take a couple months for the money to come through. You’ll need to submit all the documentation you’d need to get a traditional SBA loan, and it will be helpful if your franchise is already listed in the SBA Franchise Directory. Even though there are a few more hoops to jump through than with other alternative lenders, SmartBiz is still one of the quickest ways for a franchisee to get an SBA loan.
Check out our SmartBiz review to learn more about this SBA lender.
If you have a newer franchise or need capital ASAP, OnDeck (see our review) is one of the easiest and quickest ways to get a short-term loan or line of credit. Though OnDeck isn’t specifically geared toward franchise owners, it’s a viable online loan option for any type of small business owner that doesn’t qualify for a bank loan or doesn’t want to wait months to receive loan funds. OnDeck alsoÂ recently partnered with the Franchise Council of Australia in an effort to better serve the global franchise market (fun fact: Australia actually has more franchise outlets per capita than America).
OnDeck’s borrower requirements are much more relaxed than those for a bank or SBA loan, and time-to-funding is super speedy; the entire process from starting your application to receiving your funds normally only takes a couple days.
Short-term loans like the ones offered by OnDeck have higher rates and fees compared to longer-term loans. Effective interest rates start at 9.99%, and if you have a newer franchise and/or poor to fair credit, your rate will likely be higher than that. Nevertheless, OnDeck is one of the few reputable sources of short-term, unsecured business loans offered to franchise owners, and also one of the fastest. OnDeck is additionally one of the few online franchise lenders willing to lend to applicants with poor credit.
Read our OnDeck review for more information on this recommended lender.
Fundation (see our review) is another high-quality alternative lender that provides capital to franchise businesses. Fundation has some of the lowest rates and fees you can find outside of a bank or credit union, offering up to $500,000 deposited in your account within a couple weeks after applying. However, the borrower requirements are more stringent than those for other some online lenders, as you’ll need good credit, one year’s time in business, and at least three full-time employees.
Fundation offers an 18-month line of credit in addition to 1 – 4-year installment loans.Â The time from application to funding generally takes between 2 and 7 days. All in all, Fundation is a smart choice for established franchisees that don’t want to wait months to get a loan approval. Read our Fundation review to find out why we rate this alternative franchise lender 5/5 stars.
StreetShares (see our review) is a P2P lending service that brings together business owners and investors. StreetShares is especially geared toward veteran-owned businesses. Indeed, owning a franchise can be a good transition for veterans transitioning to civilian life. However, even if you’re not a veteran, you can still use this innovative loans marketplace to get an unsecured short-term business loan or line of credit of up to $100,000. You will need to have been in business a year, or in some cases only 6 months, in order to qualify.
Some things we like about StreetShares include its excellent customer service, easy application, competitive rates, and speedy time-to-funding. You don’t even need to put up any business collateral for a StreetShares loan (though you will need a business guarantor who is willing to essentially “co-sign” your loan). Another thing that makes StreetShares special is that franchise owners who are also veterans and/or who have an interesting business backstory are preferred.Â See our StreetShares review to learn more about this alternative lending leader.
Alternative business lenders are comprising a growing part of the financing industry as bank loans become increasingly hard to get. Franchise owners benefit from alternative loans, which have less-strict borrower qualifications than traditional business or SBA loans, and also put the funds in your account a lot faster. Generally, alternative loans have higher rates than bank loans, but they represent an important source of capital to many small business owners, including franchise owners, who would not otherwise qualify for financing. Moreover, some of the best online lenders offer rates that are on par with big banks.
Here’s a quick roundup of which alternative lender will best serve your particular franchise needs:
- ApplePie: Startup-friendly franchise loans
- SmartBiz: SBA loans for franchises
- OnDeck: Bad credit-friendly franchise loans
- Fundation or Funding Circle: Loans for established franchisees with good credit
- StreetShares: Veteran-friendly franchise loans
Keep in mind that whenever you’re applying for a business loan, it’s a good idea to apply for more than one loan so you can compare rates and terms. Most lenders will only do a “soft” pull on your credit in the pre-qualification stage and will not do a hard pull (the kind that dings your credit score) unless you accept the loan offer. Happy applying!
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