5 Tips to Start or Grow Your Franchise with Business Loans

Buying a franchise can be the ideal way to break into the business world because you’re investing in a company that already has widespread name recognition. While this doesn’t mean you don’t have to advertise to attract new business, you can save quite a bit because people already know the company exists. As with any new business venture, however, you can expect to have large start-up costs.

When you can’t get a bank loan or don’t want one, alternative sources of financing can provide the funds you need to purchase and maintain your new franchise. For many franchise owners, the goal is to be so successful with the first business that it only makes sense for them to invest in a second business with the same franchise.

Alternative Borrowing Options for Franchise Owners

The Small Business Administration (SBA) backs franchise loans offered by banks at a rate of up to 85 percent of the loan value. When a bank has SBA backing, it means that the SBA repays a set percentage of the loan if the borrower defaults or files bankruptcy. SBA backing is significant for banks because it lowers their risk considerably. What this typically means for you as a borrower is lower loan fees and interest rates, higher amounts of approved credit, and a longer repayment schedule than a typical bank loan.

Getting a short-term loan or qualifying for a business line of credit from a bank are also good options to help meet your franchise expenses. You should be prepared to meet strict criteria for a bank loan and possibly put up some type of collateral as well.

Upon approval, you would make payments in equal amounts until you have paid the balance in full. Your payments will include interest. A business line of credit operates much like a credit card in that you can borrow up to the limit, repay the account, and use it over and over without needing to apply for a new loan.