Franchisor Financing

Franchisor financing involves the franchisor offering direct or indirect financing to a new franchisee. Franchisors need franchisees; franchisees often need loans to come up with the capital required to invest in a franchise. Thus, franchisors will sometimes help franchisees through direct or indirect financing. This is especially true for older, well-established franchises. They tend to use franchisor financing as both an additional profit center and as a vehicle to streamline the rollout of new franchises.
Direct financing is when the franchisor also acts as a lender, loaning money directly to the franchisee. This form of franchisor funding is relatively rare. Franchisors that participate in direct financing are generally larger franchises with established histories of successful store openings. Direct franchisor financing is most common in industries that require especially large amounts of capital and sometimes involve real estate, such as hotels or restaurants.

Indirect financing is the more common type of franchisor financing. This is when a franchisor directs a franchisee to a third-party lender, which actually gives the loan. This third-party lender often has a specific program in place for financing some portion of the franchise purchase. This lending relationship is typically based on a history of lending to franchisees of a particular franchisor.