What Is a Franchise Loan?

A franchise loan supplies the funding needed to purchase a portion of a franchise. These loans are popular and are one of the easiest type of business loans available. Some of the reasons that it is easy to get the loan is:

  • The franchisee is purchasing a profitable business model
  • The lender has records of previous franchisees and can determine how likely it is the franchise will earn a profit
  • The relative cost of opening a franchise is typically lower than the cost of starting a new business or purchasing an entire company

In order to secure a franchise loan, the borrower must prove they will repay the debt based on several factors:

  • Credit - The borrower should be creditworthy based on an evaluation of personal and past business credit
  • Equity - The borrower should be able to supply a portion of the equity required to purchase the franchise through personal funds
  • Experience - perhaps most importantly, the franchisee and borrower must show they have the tools necessary to make the franchise a success. Even when a company is successful, an individual franchise location can easily go out of business. The business owner must have a personal plan to generate a profit and show why the franchise will be successful.
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