Franchise Financing: 7 Options and How to Determine Your Eligibility

Franchises are a major investment, but you shouldn’t let that feel like a barrier to entry. Several franchise funding optionsare available to qualified investors, and with your franchisor’s help, it’s simpler than you’d think to find the right choice for you.

Let’s take a closer look at franchise financing.

How to Finance a Franchise

How much money does it take to start a franchise?

That varies widely depending on the industry, the size of the franchise, and the location. As a general rule, it can range from tens of thousands to millions of dollars. The good news is that with so many franchises to choose from, it’s simpler than you may think to find one that’s in your budget range. Many franchises in the home services industry, like PremierGarage, have low startup costs.

At PremierGarage, you can expect your initial investment to include:

• $74,950 initial franchise fee
• $186,730 to $284,250 investment range

For a more detailed breakdown of our initial investment, as well as recurring fees and royalties you’ll be responsible for throughout the life of your franchise, ask a franchise advisor to see our Franchise Disclosure Document. All franchisors are required by law to share this information with you; be sure that you use it as you create your financial plans and budget.

What are franchisors looking for in an investor?

Each franchisor sets its own franchise investment requirements. You can almost always expect a minimum net worth or liquidity requirement; though it’s becoming less common, some brands also require you to have a certain credit score. These figures aren’t meant to discourage you from investing, but rather to make sure you’re in the right position to buy a franchise. It will take time for your business to become profitable, and you should be able to meet both your personal and professional obligations in the meantime.

PremierGarage’s minimum financial requirements are:

• $350,000 minimum net worth
• $142,730 minimum liquidity
• $111,780 minimum working capital

Franchisors perform a thorough review of your finances during the franchise process. Usually, this will include personal financial statements, tax returns, and credit reports. They’ll also want to review your business plan and financial projections to ensure your goals and strategies are realistic.

What if I can’t afford the startup costs?

Franchise financing is quite common – as a matter of fact, nearly half of prospective franchisees anticipate needing a loan. As long as you meet the minimum financial requirements, most franchisors will be comfortable with you exploring your franchise funding options. Your franchisor likely has a list of trusted third-party lenders. They’ll be happy to help you find the best fit for your situation.

7 Franchise Funding Options

1. Franchisor Financing

Some franchisors offer partial financing directly through the parent company, but more commonly, they partner with third-party preferred lenders who are familiar with the brand and willing to administer loans to qualified candidates. PremierGarage offers up to $44,000 of in-house financing to qualified candidates.

2. Personal Assets 

Savings accounts, severance packages from previous employers, and home equity and retirement savings plans are sometimes used to help finance the purchase of a franchise. Leveraging these assets, however, can jeopardize financial security if you find yourself overextended in the future.

3. Rollovers as Business Startups (ROBS)

ROBS are a method of withdrawing money from a 401(k) or other retirement savings accounts to fund a new business without incurring penalties. This option is completely legal, but it may draw closer scrutiny from the IRS, so it’s important to be sure you’re doing everything properly. An accountant can help with this.

4. Commercial Bank Loans 

Prospective franchisees can apply for a commercial business loan with the bank of their choice. While every bank has their own way of doing things, you can expect them to require some personal funds up front, including around 10-30% of the total investment in cash. Borrowers who have a positive net worth – or at least more assets than debts – will have an easier time securing a loan.

5. Small Business Association (SBA) Loans 

SBA franchise loans may be easier for small businesses to get and, since they’re guaranteed by the federal government, often have better repayment terms than bank loans. Keep in mind that these loans are reliant on the Federal Reserve’s prime rate, which may make the interest rates higher than you’d like.

6. Alternative Lenders

These may be an option if you are unable to secure a commercial or SBA loan. You’ll want to be cautious with these: while the approval process is faster and less stringent than that of traditional lenders, the interest rates will likely be higher and the repayment periods shorter.

7. Friends, Family, and Crowdfunding 

If you’re low on capital or have less than stellar credit, borrowing from friends and family may be an option – as long as you’re mindful of personal and professional boundaries. Start by setting clear terms and contracts that are fair to both parties. 

With crowdfunding, investors will expect to receive early access to products and services, shares in the company, and other perks in exchange for their investment.

PremierGarage: A Smart Franchise Investment

From in-house franchise financing to business coaching, PremierGarage provides franchisees with the support and resources they need to grow their business. Inquire now, and a franchise advisor will be in touch with more information on how start a PremierGarage franchise.