Commercial Loans Blog

Commercial Loans and Franchise Financing

Posted by George Blackburne on Tue, Mar 6, 2018

Franchises.jpgOne expert recently described buying a franchise as getting a 30-yard head start in a 100-yard dash.

Investopedia defines a franchise as follows:  A franchise is a type of license that a party (franchisee) acquires to allow them to have access to a business's (the franchiser's) proprietary knowledge, processes, and trademarks in order to allow the party to sell a product or provide a service under the business's name.


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Few buyers of franchises are multi-millionaires.  They don't have hundreds of thousands of dollars to simply plop down in cash.  Therefore they need franchise financing to acquire the franchise.  Do you happen to need a franchise loan?  Are you a mortgage broker?  Does one of your clients need a loan to buy a franchise?


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There is a special Federal government program to help you purchase the franchise business of your deams.  Below are just a few of the many popular franchises that would qualify for this special Franchise Financing Program:

  • Firehouse Subs
  • Burgerim
  • Jimmy John's
  • Papa John's Pizza
  • Subways
  • Ace Hardware
  • Jiffy Lube
  • Minute Maid
  • The UPS Store
  • Sonic Drive-In Restaurants
  • Great Clips
  • Sport Clips
  • Servpro
  • Culver's
  • Supercuts
  • Anytime Fitness
  • Budget Blinds
  • Snap-On Tools
  • Valvoline Instant Oil Change
  • Smoothie King
  • and hundred and hundreds more


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These special Franchise Financing Program loans are insured by the Federal government, in a manner very similar to the Department of Agriculture's Business and Industry Loans.  These franchise loans are fully-amortized over 7 or 25 years, depending on whether or not there is real estate involved.

The interest rate on these Franchise Financing Program loans is VERY favorable, largely due to the fact that a large portion of the loan is guaranteed by the Federal government.  When you consider the fact that a franchisee buying his first business, and hence the loan is a start-up loan, the interest rate is amazing.


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The thing about this Franchise Financing Program is that the lender making the loan - usually a bank - still has to retain the uninsured portion of the loan.  In other words, the bank has to keep a significant amount of skin in the game.  Approval is not automatically guaranteed.

But if one bank turns you down for a Franchise Financing Program loan, don't give up.  The next bank might very well approve your deal.  Some banks are all about the franchise.  They like certain franchises but not other ones.


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Some banks are all about the borrower's good credit, while other banks will accept credit scores in the low 600's.  Other banks focus on the collateral, while some non-bank lenders do not even require any collateral.  So don't take a single turn-down as proof that your Franchise Financing Program deal cannot be financed.

The borrower will always need at least 20% down to buy his first franchise.  That is chiseled in stone.  But some Franchise Financing Program lenders will let a franchisee open a second store with as little as 10% down.  Others will allow a franchisee to open its second store in less than twelve months!


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If you need a loan to buy a franchise, we encourage you to click on one of the red buttons scattered throughout this article.


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