Franchise Loans

There are three primary ways to obtain franchise financing from a bank or other lender:

• SBA Financing (through the SBA Loan Guaranty Program)
• Bank Financing (directly through a bank or lending institution)
• Franchisor Financing (financing by the franchisor)

Bank Financing: Commercial loans for franchises and other small businesses are available through many banks. These loans can be risky for lenders, with the result that obtaining approval can be difficult.
SBA Financing: The SBA itself does not offer loans to borrowers; instead, it offers guaranties to banks and other lenders. With an SBA guaranty, a lender has the assurance that a certain percentage of a loan will be paid back.

With this guaranty, lenders do not shoulder the entire risk of a loan. This makes lenders less stringent with their lending policies, meaning that more franchisees and other small businesses are approved for loans.

Franchisor Financing: Sometimes a franchisor assists a franchisee with financing, either through taking on the role of a lender or through helping a franchisee find funding from a third-party lender.