Written by
Matt Frentheway

Fund Your Franchise: 10 Options for Franchise Financing

If you’re starting a franchise business, you may need financing to pay your franchise fees, lease your location, handle construction, purchase equipment, or buy inventory.

In my experience, other than cash, most people use SBA loans, HELOCs, and ROBS. However, there are a couple options that can beat all three!

In this guide, I’ll present 10 types of franchise financing in a general preferential order.

  1. Cash
  2. Internal franchise loans
  3. HELOCs (home equity lines of credit)
  4. ROBS (rollovers as business startups)
  5. SBA loans
  6. Traditional bank loans
  7. Your investment portfolio
  8. Alternative lender loans
  9. Personal assets or credit cards
  10. Friends and family

To be clear, the order I suggest is just a guide. The loan that works best for you will depend on your specific circumstances.

For each option, I’ll walk you through the pros and cons, my tips and suggestions, and your next steps to finance your franchise.

Let’s get started!

1. Cash

If you have plenty of cash on hand to cover your franchise startup costs, then cash could be your best financing option, or at least a big part of your financing mix.

Cash really is king

The primary advantage of cash is that you can minimize risk exposure. You won’t need to break into your retirement account or take out a second mortgage on your house.

You won’t need to pay for a costly loan. You won’t need to worry about interest rates, payment terms, or making payments. And you’ll have complete control and ownership over your business.

What’s not to love?

The key condition for using cash

To use cash, you need to ensure that you can more than cover the costs of starting your franchise. You have to meet all of your franchise requirements. In addition, you should set aside extra cash so you can comfortably operate.

If you can’t cover 120% of your startup costs, then I would line up additional financing just so you have it on hand. If you have a strong financial background and a solid credit history, you should be able to get the very best interest rates.

Financing can help you buy more territory

Franchises love to sell you extra territory, and it’s usually a great deal for you – one you may look back on with regret if you miss out on.

Usually franchises will offer you extra territories at a discount when you sign up. To sweeten the deal, they sometimes offer reduced royalties or lower franchise fees.

These perks will almost definitely not be available after you sign. And the extra territory itself may also get bought up by other franchisees.

So, if you can, it pays to invest early. Extra financing can be critical so that you can comfortably make the extra investment in territory. This will allow you to set yourself up for bigger returns as you grow multiple locations instead of just one.

Consider opportunity costs

Of course, there are opportunity costs to using all cash. Some franchise candidates like to mix cash with other financing in order to:

  • take advantage of low interest rates (providing you can get a better return on your investment to justify the interest expense)
  • lower your taxes
  • build more credit history
  • spread your repayment over a longer time period
  • keep more cash liquid and better manage your cash flow

2. Internal Franchise Loans

The franchise you buy from may offer internal franchise loans, also known as in-house financing. Most franchises will clarify whether they offer financing in their Franchise Disclosure Document (FDD).

Internal loans are one of my favorite sources of franchise financing. It’s in a franchise’s best interests for franchisees to be successful, so their loans are designed to assist capable franchisees.

Benefits of internal franchise loans

Typically, a franchise's objective is to help you start your business and become profitable as soon as possible.

With an internal franchise loan, you can usually get money faster and with less documentation than from outside lenders. Franchises know their business, so they aren’t going to require you to provide superfluous details in your business plan. Instead, they’re more interested in your analysis of the territory where you propose launching your franchise. This more streamlined process can save you a lot of hassle and stress.

Downsides to internal franchise loans

There are possible downsides to internal franchise loans.

  • Interest rates: Some have higher interest rates than traditional bank loans. So it’s a good idea to apply for both and see which loan gives you the best offer.
  • Limited flexibility: The terms of an internal franchise loan may be less flexible compared to a traditional bank loan. This can make it harder to make changes or adjust the loan as your needs evolve.
  • Lack of independence: By taking out an internal franchise loan, you may be more reliant on the franchisor and have less independence in your business decisions.
  • Potential for conflicts of interest: Since the franchisor is also the lender, there are inherent potential conflicts of interest. This can make it harder for you to negotiate favorable loan terms.

Seek outside options in addition to internal loans

Potentially, internal loans can lower your interest rates and give you flexibility without any meaningful downsides. Still, it’s a good idea to explore more than one option, so I always recommend getting at least one other loan offer outside of a franchise’s in-house financing.

Even if you don’t think you need financing, I suggest speaking to any franchise you’re interested in about what kind of franchising loans they offer. This just gives you flexibility so that you can make the best decisions for your personal and business finances.


A home equity line of credit (HELOC), commonly called a “second mortgage”, is a loan that lets you use the equity in your home as collateral.

With a HELOC, you’ll receive a revolving line of credit that you can use to start your business. The interest rate on a HELOC is often lower than other types of loans, and the interest may also be tax-deductible.

The interest rate on a HELOC may be variable, so it could change each month based on a financial index and a constant margin. However, some lenders will offer you the option to convert a portion of the balance to a fixed rate.

Who a HELOC is ideal for

A HELOC is ideal for entrepreneurs who own a home and have available equity in it. That is to say, the amount you owe on your home must be less than the value of your home.

You can typically borrow up to 85% of the value of your home minus the amount you owe.

You’ll also need a good credit score, credit history, employment history, and a steady income. Your lender will also consider your monthly debts.

Advantages of using a HELOC

Using a HELOC as a financing option for your franchise business comes with several benefits.

  • Lower interest rate: A HELOC often has a lower interest rate compared to other common types of loans, making it a more affordable option to finance your business.
  • Tax Deductible: The interest you pay on a HELOC may be tax deductible, providing you with additional tax benefits.
  • Flexibility: With a HELOC, you have the flexibility to borrow as little or as much as you need throughout the draw period (typically 10 years) up to the credit limit you establish at closing. You can also withdraw money from the HELOC as needed, giving you access to funds whenever you need them.
  • Easy repayment: As you repay your outstanding balance, the amount of available credit will replenish. This makes it easy for you to borrow again if you need to.
  • Easier and faster: These loans are much easier to close than traditional and SBA bank loans.

Disadvantages of using a HELOC

It's important to consider the following drawbacks before deciding to use a HELOC.

  • House as collateral: When you take out a HELOC, your house is used as collateral. If you can't repay your loan, the lender can foreclose on your home. Of course, most SBA and bank loans will also want to use your house as collateral, so this is not unique to a HELOC.
  • Variable interest rate: A HELOC usually comes with a variable interest rate, meaning that the rate can change from month to month. This can make budgeting and planning more challenging as you may not know how much your monthly payments will be.
  • Closing costs: Some lenders may charge up-front fees, such as an application fee, an annual fee, and a cancellation or early closure fee.

Get your accountant’s opinion

Because your house is at stake, it's important to make sure you can repay a HELOC loan before you take out a HELOC. You can consult with your accountant to get their advice on the smartest way to finance your business.

If you’d like to check out interest rates before speaking to your accountant, you can explore today’s HELOC rates at Bankrate.com.


Many of my candidates use ROBS (rollovers as business start-ups). This allows them to fund their franchise businesses using their retirement savings.

With ROBS, you simply take the money you’ve saved in a retirement account, like a 401(k) or IRA, and invest it into your business.

Who is ROBS for?

ROBS is an ideal funding source if you have a substantial amount of money saved in a retirement account and you’re willing to invest that money into your new business.

The most significant advantage of using ROBS as a funding source is that it’s not a loan or a withdrawal! This means there are no payments, penalties, or interest.

Conditions for using ROBS

To use ROBS, you must meet the following conditions:

  • You must contribute $50,000 or more from your retirement savings.
  • You must be an employee of your new business.
  • Your business must be structured as a C corporation (C-Corp).
  • You must be able to fund the setup costs of $5,000 from outside the deferred retirement account.

Advantages to using ROBS

ROBS provides several advantages to new franchisees.

  • Versatile funding: You can use your ROBS funds for various business expenses, including startup costs, equipment, inventory, and more.
  • No monthly payments or interest: Unlike a traditional loan, a ROBS arrangement does not require monthly payments or interest. This can be a significant advantage when you’re dealing with the costs and challenges of starting a new business.
  • Special tax benefits: You may be able to defer taxes on retirement funds until you withdraw the funds. This can help you save money on taxes and preserve more of your retirement funds.
  • Control over retirement funds: With ROBS, you retain control over your retirement savings. You can decide when and how to use your funds, and can change your investment strategy as needed. This level of control is great for peace of mind and financial security.

Of course, the benefits of ROBS will depend on your individual circumstances and the laws of your state. A ROBS specialist or financial advisor can provide more insights to help you determine if ROBS is suitable for you.

Disadvantages to using ROBS

ROBs carries several disadvantages, notably:

  • a complex setup process with numerous legal and financial steps
  • significant upfront costs and ongoing annual fees for maintenance and compliance
  • finally, and most importantly, a risk of losing your retirement savings if your business fails

Obviously, the final drawback here is quite significant. To protect yourself, I recommend that you only use ROBS if you are confident that you have at least one income fallback in the event your business doesn’t work out. Perhaps you have an investment house, an additional family income, or you don’t mind working again for some additional years.

If you have a substantial retirement account, you can leave most of it alone. Then you can limit your risk to just a portion of the account that you can afford to lose.

(I know an excellent ROBS specialist. So, if you’re looking for advice, please email me and I’ll be happy to put you in touch.)

Speak with your accountant first

There are several laws and regulations that govern the use of ROBS, including the Employee Retirement Income Security Act (ERISA). To avoid tax penalties, you’ll want to work with an accountant experienced with ROBS to get everything set up perfectly.

The IRS states that it does not consider ROBS to be “abusive tax avoidance transactions”. However, the IRS has observed that “promoters aggressively market ROBS arrangements to prospective business owners.”

Some companies apply for a favorable determination letter (DL) from the IRS to assure their clients that the ROBS arrangement is approved. However, a DL only confirms that the plan meets Internal Revenue Code requirements. It does not protect against incorrect application of the plan's terms or discriminatory operations.

It’s important to understand that if your ROBS arrangement only benefits you and not other employees of your business, the IRS may consider it discriminatory.

If you use ROBS, speak with a trusted ROBS specialist and make sure that you are able to follow all the rules and requirements of the plan. If you don't, the IRS could disqualify the plan and hit you with additional taxes.

If you’d like to read more yourself before meeting with your accountant, I suggest reviewing Guidant’s guide to ROBS.

None of this is meant to scare you. I’m a fan of ROBS. I just want to make sure you’re aware of these nuances that need to be set up properly.

5. SBA Loans

Small Business Administration (SBA) loans are popular for franchise funding. These loans offer lower interest rates and more favorable repayment conditions than traditional bank loans.

In a 2022 Franchise Ventures survey, nearly half of small businesses reported that they planned to take out an SBA loan.

SBA loans are partially funded by the Small Business Administration (SBA), a U.S. government agency that helps small businesses succeed. Since lenders are guaranteed to get their money back thanks to the federal government, SBA loan providers have more incentive to offer relaxed repayment schedules.

What you need to qualify for an SBA loan

The Small Business Administration is very supportive of franchise investments. Still, qualification criteria can be stringent. To be eligible for an SBA loan, you must:

  • be a small business owner of a for-profit business operating in the US
  • have a credit score of at least 650
  • put up sufficient collateral to secure a loan
  • have a solid business plan
  • demonstrate that you have the experience and ability to run your franchise

The SBA loan application process

SBA loans often require a lengthy application process. You’ll want to gather financial statements, tax returns, business plans, and other documents that demonstrate the viability of your business.

To apply for an SBA loan, you'll need to work with a lender that has been vetted by the SBA. This process can involve several steps and may take around 30 days to complete.

Types of SBA loans

The SBA offers multiple types of small business loans, including the SBA 7(a) loan, the SBA Express loan, and the SBA 504 loan.

SBA 7(a) loans

The SBA 7(a) loan is the most popular product offered by the SBA. It allows businesses to borrow up to $5 million for a variety of purposes. The approval process can take 2-3 months depending on the lender and the borrower.

SBA Express loans

The SBA Express loan is a faster option for businesses that need emergency funding. This loan allows businesses to borrow up to $350,000, and the SBA promises a turnaround time of 36 hours. However, the actual approval process can take longer than this for the lender to review your loan application and make a decision.

SBA 504 loans

The SBA 504 loan is a long-term loan specifically designed to help you purchase fixed assets like real estate or equipment. Businesses typically use this loan to expand or modernize their operations. The approval process for an SBA 504 loan can take several months since it involves multiple parties, including the SBA, the lender, and a certified development company.

Which SBA loan is right for you?

The two most popular SBA loans are the SBA 7(a) loan and the SBA 504 loan.

I recommend checking out Fast Capital 360’s side-by-side comparison of these loans.

To help you further, I have several SBA financing partners who specialize in financing franchises who I can introduce you to. I trust them to give you the best customized option based on your situation, with no obligation. If you would like to talk with them, just say the word.

6. Traditional Bank Loans

Banks tend to work best for companies that have been around for more than a year and don’t need cash fast. So, they’re usually not ideal for new franchisees.

Who are bank loans for?

Traditional bank loans are a good option for franchisees with a strong credit history and financial profile, as well as collateral to secure the loan.

Traditional banks often offer competitive interest rates, long repayment terms, and a wide range of loan products. If you have a strong credit score, you may be able to negotiate favorable loan terms.

Disadvantages of bank loans

Approvals can take months and are not guaranteed, even with good credit. According to the latest data from the Biz2Credit Small Business Lending Index, banks only approve 15% of business loan applications.

The bank loan application process requires time-consuming documentation. You’ll usually also need to provide collateral, such as a mortgage on your home.

Many people avoid bank loans due to perceived high interest rates. Keep in mind, interest rates vary depending on the bank you choose. To give yourself options, get quotes from at least one credit union and one commercial bank.

How a bank loan works

Each bank will ask to review your credit history and your business plan to make sure you can comfortably manage repayments. Once you qualify for a bank loan, you will receive the stipulated amount upfront. You’ll then be expected to pay monthly installments with interest until you pay off your loan.

Comparison of top bank loan lenders

Bank of America, JP Morgan Chase, Citibank, and Wells Fargo each offer small business loans. Here’s a brief comparison table.

7. Your Investment Portfolio

Many brokerages allow you to borrow up to 50% of what your portfolio is worth.

A portfolio line of credit, also known as a margin loan, is a relatively lesser-known benefit of a brokerage account that allows investors to borrow money against the value of their securities portfolio, using their stocks, bonds, and funds as collateral.

The amount you can borrow depends on how big your portfolio is. If you have a larger portfolio, you can get a bigger loan.

These loans work a bit differently than regular loans. They have an interest rate that can change as interest rates in the world change, so it's not fixed like a regular loan. Plus, you don't have to stick to a strict schedule for repaying it, which gives you more freedom.

The interest rate you get for this type of loan depends on how much money you have with the brokerage firm and how much you want to borrow. Usually, these loans have lower interest rates compared to other types of loans.

You can only get this kind of loan in a regular taxable account, not in retirement accounts like IRAs. And the good news is, they don't check your credit score. But every brokerage has a minimum amount of money you must have in your account, and they limit how much you can borrow based on a percentage of the total value of your investments.

Pros and cons

Pros of using a portfolio line of credit include:

  • lower interest rates
  • no credit checks
  • potential tax deductions for interest costs

Cons include:

  • the risk of margin calls
  • variable interest rates
  • the possibility of becoming overleveraged.

Watch out for margin calls

You should be very cautious about potential margin calls. If the value of your portfolio drops below a certain threshold, the broker can issue a margin call.

They will require you to add cash to your account to reduce your outstanding loan or sell investments to cover the debt. This can put you in a bind if you have to sell assets at bad prices.

Because of margin calls, I'm not a fan of this type of financing. I don't like having my financial security tied to what goes on in markets beyond my control.

8. Alternative Lending Loans

Alternative lenders can be a lifeline if you’re eager to start your franchise but you can’t secure an SBA or bank loan. Many offer short-term loans, business lines of credit, and long-term loans.

Pros and cons

Alternative lenders have more lenient requirements. They typically require a one-page summary of your business instead of a detailed business plan. They also offer faster turnaround and shorter repayment periods.

The tradeoff is that they’ll charge you higher interest rates. Additionally, alternative lenders are usually smaller than banks, so the amounts they offer are typically smaller.

Top alternative lenders for small businesses

I’ve prepared a roundup of business loans geared towards small businesses.

I have not taken out loans from any of these organizations, so I cannot speak from personal experience. However, I hope this summary is helpful as a starting point in your research if you’re looking into alternative business loans.

  • ApplePie Capital specializes in helping franchisees. They offer features that you may not find with traditional lenders including interest-only grace periods, flexible collateral, 5-10 year payment terms, and fixed and variable rates.
  • CAN Capital will let you borrow up to $250k with terms ranging from 6 to 24 months.
  • Funding Circle offers short and long term finance. They offer term loans up to $500k with terms up to 7 years, SBA 7(a) loans up to $5 million and terms up to 10 years, and business lines of credit up to $250k.
  • Fundbox line of credit will let you borrow up to $150k. You must have a minimum of 600 personal FICO credit score. You should also have $100k in annual revenue and a business checking account, and you should ideally have been in business for at least 6 months.
  • Bluevine line of credit will let you borrow up to $250k with a rate as low as 6.2% and a decision in as little as 5 minutes. You need a minimum 625 FICO score and $10k in monthly revenue. Your business must also have been in operation for at least 6 months.
  • OnDeck offers term loans and lines of credit. You can borrow up to $250k with a term loan with repayment terms up to 24 months. Or you can borrow up to $100k with a line of credit with repayment terms up to 12 months. Both loan types require that you have a 625 or higher FICO score, show $100k in annual revenue, and have been in business for at least a year.

9. Personal Assets or Credit Cards

You can supplement your personal financing with a small business credit card.

Be extremely careful with this option. Use it sparingly, if at all. The point of franchising is to create more financial security, not less.

Use a business credit card responsibly

Of course, cards are great for earning points. Additionally, many cards offer a certain amount of time with 0 interest.

High interest rates kick in immediately after this period ends. It’s important to focus on earning revenue in the short-term so you can pay off your card before interest starts accumulating.

Assess the benefits and risks

A credit card lets you:

  • maintain control over your business equity
  • access low- or no-interest capital
  • avoid collateral requirements

However, there are risks:

  • mixing personal and business expenses
  • credit damage
  • liability issues
  • insufficient funding
  • qualification challenges

Carefully consider the benefits and risks before using credit cards for startup funding. Then take measures to protect your business.

  • To avoid commingling, get separate cards for your business and your personal spending.
  • Pay your bills on time and keep your balances as low as possible.
  • Research your credit card options and choose a card with a low interest rate for an extended period of time.

10. Friends and Family

If your personal savings are not enough, you can consider asking for assistance from your friends and family.

You’ll want to gauge whether this is appropriate based on your family relationships and your family’s level of financial security.

Pitch professionally

ZenBusiness offers some suggestions for pitching to your friends and family professionally.

  • First, consider asking for a loan rather than an equity investment. This will avoid diluting your company ownership. It will also minimize potential interference in your business decisions.
  • Provide financial statements and a written agreement outlining the terms of the loan.
  • Form a corporation or LLC to protect your friends and family from business debts and liabilities. This ensures they will never lose more than they invest.
  • Work with a company or an attorney who specializes in handling loans from friends and family.

Protect your relationships

Loans can strain relationships. To avoid this, I recommend explicitly telling your friend or family member that you will do everything you can to repay your loan on time.

Promise to limit or cut off your discretionary spending until your loan is paid off, and discuss what that will look like. This will give you the mental framework to pay back your loan promptly. It will also show your friend or family member how seriously you take your responsibility to pay them back.

Know what to expect

Setting the right expectations will help you avoid surprises down the road.

  • Your friends and family may turn you down. This needs to be ok with you. You have other avenues for funding that you can pursue.
  • Your friends might give stricter terms than commercial banks. Remember that your friends have limited resources, their own priorities, and different levels of comfort around risk. So never push someone to do something they’re not comfortable with.
  • Your friends might give unsolicited business advice, especially if the loan is an equity investment. Small Business Trends offers some great suggestions on how to respond to unsolicited advice.
  • Your friends might also require interest on the loan. They might include this to hold you accountable and to help them realize a return on their investment. Respect their wishes, and focus the discussion on finding a fair interest rate.

Use loans from friends and family as a bridge

I suggest only using funding from friends or family as a booster for your business.

For example, you could use funds from friends for a quick cash infusion while you wait for your SBA or bank loan to be reviewed. Then you can repay your friend once your loan is disbursed.

Just be careful to avoid promising your friend that your SBA or bank loan will be approved, since you cannot know this for certain. 


If you don’t have cash to fully fund your business, you’re not alone. The good news is that most institutions will not lend to you unless they are quite confident that you can repay your loans.

In review:

  • Cash is king. But you can supplement cash with financing to help you buy more territory and gain other strategic advantages.
  • Internal franchise loans usually offer compelling advantages for franchisees.
  • ROBS and HELOCs help you to secure financing using your retirement savings or the equity in your home.
  • SBA loans are the most common loans for small businesses, and they work very well for franchises.
  • Traditional bank loans can be time-consuming to apply for and difficult to qualify for.
  • Alternative lenders may charge a higher interest rate. But they can be a useful option if you don't qualify for a bank loan.
  • Finally, some entrepreneurs use credit cards and loans from friends and family. These come with distinct disadvantages, so exercise caution.

If you’re eager to experience financial freedom, I would love to meet with you!

Get in touch with me today to set up a free meeting.

I can help you choose the right franchise for you – and the most viable funding source – so you can build the business of your dreams.

Matt Frentheway

As a successful franchisee and entrepreneur, I can help you find the best opportunity to realize your dream of being a profitable franchise owner. Using my proven process as a franchise consultant, we’ll define your goals, narrow the field, and select the best franchisor for you to achieve financial freedom.