Starting a franchise business is an exciting venture, but a key question often arises: how will you fund it? Fortunately, there are several options available for financing your franchise. These include SBA loans, 401(k) rollovers through the ROBS program, using personal cash, and more. In this guide, we will explore nine different funding methods:

  1. Cash
  2. Internal franchise loans
  3. Home Equity Lines of Credit (HELOCs)
  4. Rollovers as Business Startups (ROBS)
  5. SBA loans
  6. Traditional bank loans
  7. Loans from alternative lenders
  8. Using personal assets or credit cards
  9. Borrowing from friends and family

Each of these methods has its own set of benefits and considerations. While some people find success with a single funding source, others may combine several methods to achieve their financial goals. It's important to understand that everyone's financial situation is different, and what works for one person may not be the best option for another. That's why speaking with a funding expert is crucial. They can help you assess your personal circumstances and guide you towards the funding strategy that best suits your needs. In the following sections, we'll go into more detail about each of these funding options, helping you make an informed decision for your franchise venture.

Cash For Funding a Franchise


Utilizing cash for franchise financing involves leveraging your personal savings to cover startup and operational costs. This method is direct and straightforward, relying solely on available personal funds.

Why People Use It

Cash financing is popular for its simplicity and the control it offers. Entrepreneurs who have substantial savings and want to avoid the complexities of loans or debt often choose this route. It's a clear-cut way to fund a business without entangling personal assets or future earnings in loan agreements or interest payments.

Who It Is For

This method is ideal for individuals who have a significant amount of liquid assets. It's particularly suited for those who prefer a risk-averse approach to business financing, as it eliminates the need for borrowing and the associated debt.


  • Risk Reduction: Using cash minimizes financial risk by avoiding debt and interest.
  • Full Control: It ensures complete ownership and decision-making power, free from lender influence.
  • No Interest or Repayment Worries: Eliminates concerns about loan repayments, interest rates, and credit history impacts.
  • Immediate Operational Readiness: Allows for a quicker start, as there's no waiting period for loan approvals.


  • Limited Resources: Heavily reliant on personal financial capacity, which can limit the scale of the franchise or additional opportunities.
  • Opportunity Costs: Tying up cash in one venture might mean missing out on other potentially lucrative investments.
  • Lack of Financial Cushion: Using cash reserves reduces the safety net for personal or business emergencies.
  • Potential Missed Growth Opportunities: Limited funds might mean forgoing advantageous deals, like discounted additional franchise territories, which often require quick, substantial investment.

In conclusion, cash financing is a solid option for those with ample savings who wish to avoid the complexities and obligations of borrowing. However, it requires careful consideration of one’s financial stability and willingness to commit a large portion of personal funds to a single investment.

2. Internal Franchise Loans


Internal franchise loans, or in-house financing, are provided by the franchise itself. These loans are typically outlined in the Franchise Disclosure Document (FDD) and are designed to assist franchisees in successfully launching and operating their business.

Why People Use It

Franchisees often opt for internal loans due to the streamlined process and the franchisor's vested interest in their success. These loans can be quicker to obtain and may require less documentation than external financing options, making them an attractive choice for many franchise buyers.

Who It Is For

This financing method is ideal for franchisees who are looking for a more straightforward loan process and those who may benefit from the franchisor's in-depth understanding of the business model and market. It's particularly suitable for individuals who are comfortable with a closer financial relationship with their franchisor.


  • Streamlined Process: Often requires less documentation and a more straightforward application process.
  • Franchisor Support: Franchisors have a vested interest in your success, which can translate into more supportive loan terms.
  • Quick Funding: Typically, these loans are processed faster than traditional bank loans.
  • Focused Requirements: Franchisors may focus more on the practical aspects of the business, like territory analysis, rather than extensive business plan details.


  • Higher Interest Rates: Some internal loans may come with higher interest rates compared to traditional loans.
  • Less Flexibility: The terms might be more rigid, offering less room for adjustments as your business needs evolve.
  • Reduced Independence: Relying on the franchisor for financing can lead to a less autonomous business relationship.
  • Potential Conflicts of Interest: As the franchisor is also the lender, this dual role can lead to conflicts, especially in negotiations over loan terms.

Additional Considerations

While internal franchise loans can offer benefits like lower interest rates and greater flexibility, it's wise to explore multiple financing options. Comparing offers from both in-house and external sources ensures that you secure the best possible terms for your situation. Even if you don't initially plan to seek financing, understanding the available options within your chosen franchise can provide valuable flexibility for your financial planning and business strategy.

3. Home Equity Lines of Credit (HELOCs)


A Home Equity Line of Credit (HELOC), often referred to as a "second mortgage," is a type of loan that allows you to use the equity in your home as collateral. It provides a revolving credit line for large expenses, including starting a business.

Who a HELOC Is Ideal For

HELOCs are best suited for homeowners who have built up significant equity in their property. This means the value of your home exceeds the remaining mortgage balance. Homeowners who meet this criterion and have a good credit score, stable income, and a solid employment history are ideal candidates for a HELOC.

Advantages of Using a HELOC:

  • Lower Interest Rates: Typically, HELOCs offer lower interest rates compared to other loan types, making them a more cost-effective option.
  • Tax Benefits: The interest paid on a HELOC may be tax-deductible, offering additional financial advantages.
  • Flexibility: HELOCs provide the flexibility to borrow varying amounts up to a set limit during the draw period, usually up to 10 years.
  • Revolving Credit: As you repay the borrowed amount, the credit becomes available again, offering ongoing access to funds.
  • Ease of Access: Generally, obtaining a HELOC is faster and involves fewer hurdles than traditional or SBA loans.

Drawbacks of Using a HELOC:

  • Risk to Home: Your home is used as collateral, meaning failure to repay the loan could lead to foreclosure.
  • Variable Interest Rates: The interest rate on a HELOC can fluctuate, making it challenging to predict monthly expenses.
  • Additional Costs: Some HELOCs come with fees, including application fees, annual fees, and potential penalties for early closure.

Consulting a Financial Expert

Given the risks involved, particularly with your home as collateral, it's crucial to consult with an accountant or financial advisor. They can provide guidance on whether a HELOC is a prudent choice for your franchise financing needs. Additionally, researching current HELOC rates, such as those available on, can give you a clearer idea of the financial landscape before making a decision.

4. Rollovers as Business Start-Ups (ROBS)


ROBS, or Rollovers as Business Start-Ups, is a financing strategy that allows entrepreneurs to use their retirement savings to fund their franchise without incurring early withdrawal penalties or loan costs. This method involves rolling over funds from a retirement account, such as a 401(k) or IRA, into your new business venture.

Who ROBS Is Ideal For

ROBS is a suitable option for individuals who have accumulated a significant amount in their retirement accounts and are willing to invest this capital into their new business. It's particularly appealing to those looking for a funding source that doesn't involve debt or traditional loans.

Conditions for Using ROBS:

To utilize ROBS effectively, certain conditions must be met:

  • A minimum of $50,000 must be available in your retirement savings for the rollover.
  • You must become an employee of your new business.
  • The business must be set up as a C corporation.
  • You should be able to cover the initial setup costs, typically around $5,000, outside of your retirement funds.

Advantages of Using ROBS:

  • Versatile Funding: ROBS funds can be used for various business needs, including startup costs, equipment, and inventory.
  • No Debt Obligations: This method does not require monthly repayments or interest, easing financial pressure during the initial business phase.
  • Tax Benefits: Potential for deferring taxes on retirement funds until withdrawal, offering a tax-saving advantage.
  • Control Over Funds: ROBS allows you to maintain control over your retirement savings, giving you the flexibility to decide how and when to invest.

Disadvantages of Using ROBS:

  • Complex Setup: ROBS involves a complicated setup process with legal and financial steps.
  • Upfront and Ongoing Costs: There are significant initial costs and annual fees for maintenance and compliance.
  • Risk to Retirement Savings: The most considerable risk is the potential loss of retirement funds if the business fails.

Consulting with Professionals

Given the complexities and risks involved, it's crucial to consult with a ROBS specialist and an accountant familiar with these arrangements. They can help ensure compliance with laws like the Employee Retirement Income Security Act (ERISA) and advise on the best way to structure your ROBS plan. While the IRS does not view ROBS as a tax avoidance scheme, it's important to set up and operate the plan correctly to avoid potential issues, such as IRS penalties for discriminatory practices.

Before proceeding, consider reviewing comprehensive guides like Guidant’s guide to ROBS and discussing the option with a trusted financial advisor to understand all the nuances and ensure a proper setup. While ROBS can be an excellent funding source, it's important to be fully aware of the responsibilities and risks involved.

5. SBA Loans for Franchise Financing


Small Business Administration (SBA) loans are a favored choice for financing franchises due to their lower interest rates and favorable repayment terms compared to traditional bank loans. These loans are partially backed by the SBA, a U.S. government agency, which encourages lenders to offer more lenient terms.

Qualifying for an SBA Loan

To be eligible for an SBA loan, applicants must meet certain criteria:

  • Own a for-profit small business based in the United States.
  • Have a credit score of at least 650.
  • Provide sufficient collateral for loan security.
  • Present a comprehensive business plan.
  • Demonstrate the capability to successfully manage the franchise.

The Application Process

Applying for an SBA loan involves a detailed process, including the submission of financial statements, tax returns, and business plans. Working with an SBA-approved lender is necessary, and the entire process can take about 30 days or more, depending on various factors.

Types of SBA Loans

  • SBA 7(a) Loans: The most common type, allowing borrowing of up to $5 million for various purposes. The approval process can take 2-3 months.
  • SBA Express Loans: A quicker option for urgent funding needs, offering up to $350,000 with a promised 36-hour turnaround time for SBA's part, though the lender's review process may extend this period.
  • SBA 504 Loans: Designed for purchasing fixed assets, like real estate or equipment, and typically used for expansion or modernization. The approval process is lengthy, involving multiple parties and can take several months.

Choosing the Right SBA Loan

The SBA 7(a) and SBA 504 loans are the most commonly utilized for franchises. Resources like Fast Capital 360’s comparison of these loans can be helpful in making an informed decision.

Expert Assistance

For personalized guidance, working with SBA financing specialists who have experience in franchise funding can be invaluable. They can offer customized solutions based on your specific situation, helping you navigate the complexities of SBA loans without any obligation. If you're interested, I can connect you with trusted financing partners who specialize in this area.

In summary, SBA loans offer a viable route for franchise financing, but it's important to understand the different types and their requirements. With the right preparation and expert advice, securing an SBA loan can be a strategic step towards launching your franchise.

6. Traditional Bank Loans for Franchise Financing


Traditional bank loans are a common financing option, though they are typically more suited to established businesses rather than new franchisees. These loans are ideal for those who don't require immediate funding and have a solid financial background.

Who Bank Loans Are For

Bank loans are well-suited for franchisees who have a strong credit history, a robust financial profile, and collateral to secure the loan. They are a viable option for those who can afford to wait through the application process and are in a position to negotiate favorable terms due to their creditworthiness.

Advantages of Bank Loans:

  • Competitive Interest Rates: Banks often offer attractive interest rates, especially for borrowers with strong credit scores.
  • Long Repayment Terms: They typically provide longer repayment periods, making monthly payments more manageable.
  • Diverse Loan Products: Banks offer a range of loan products, allowing borrowers to choose an option that best fits their needs.

Disadvantages of Bank Loans:

  • Lengthy Approval Process: Getting approval can be time-consuming, often taking months, and there's no guarantee of approval even with a good credit score.
  • Low Approval Rates: As per the Biz2Credit Small Business Lending Index, banks have a relatively low approval rate for business loans, around 15%.
  • Extensive Documentation Required: The application process demands thorough documentation, including detailed business plans and financial statements.
  • Collateral Requirement: Most bank loans require collateral, such as a home mortgage, which adds an element of risk.

Understanding Bank Loan Mechanics

When applying for a bank loan, the bank will review your credit history and business plan to assess your ability to manage repayments. Upon qualifying, you receive the loan amount in a lump sum and are expected to make regular monthly payments, including interest, until the loan is fully repaid.

Interest Rate Considerations

While some people are wary of bank loans due to the perception of high interest rates, these rates can vary significantly between banks. It's advisable to get quotes from different financial institutions, including credit unions and commercial banks, to find the most favorable rates.

In summary, traditional bank loans can be a solid option for financing a franchise, especially for those with a strong financial standing and the ability to provide collateral. However, it's important to be prepared for a potentially lengthy application process and to explore various banking institutions to secure the best terms.

7. Alternative Lender Loans for Funding a Franchise


Alternative lenders offer a range of financing options, including short-term loans, business lines of credit, and long-term loans, particularly useful for those who are keen to start their franchise but are unable to secure traditional bank or SBA loans.

Pros and Cons of Alternative Loans

  • Pros:
  • Lenient Requirements: Alternative lenders often have more relaxed criteria, sometimes requiring just a one-page business summary instead of an extensive business plan.
  • Quick Turnaround: They are known for faster processing times, which is ideal for those needing quick funding.
  • Flexible Repayment Terms: Many offer shorter repayment periods, which can be beneficial for businesses expecting quick growth.
  • Cons:
  • Higher Interest Rates: To offset the risk, alternative lenders typically charge higher interest rates than traditional banks.
  • Smaller Loan Amounts: Being generally smaller than traditional banks, the loan amounts offered by alternative lenders are often lower.

Top Alternative Lenders for Small Businesses:

  • ApplePie Capital: Specializes in franchise financing with unique features like interest-only grace periods, flexible collateral options, and 5-10 year payment terms. They offer both fixed and variable rates.
  • CAN Capital: Offers up to $250k in loans with terms ranging from 6 to 24 months.
  • Funding Circle: Provides a variety of financing options including term loans up to $500k with terms up to 7 years, SBA 7(a) loans up to $5 million with terms up to 10 years, and business lines of credit up to $250k.
  • Fundbox: Offers a line of credit up to $150k. Requirements include a minimum 600 FICO score, $100k in annual revenue, and at least 6 months in business.
  • Bluevine: Provides a line of credit up to $250k with rates as low as 6.2% and quick decision-making. Requirements include a minimum 625 FICO score, $10k in monthly revenue, and at least 6 months of business operation.
  • OnDeck: Offers term loans and lines of credit up to $250k with repayment terms up to 24 months, and lines of credit up to $100k with terms up to 12 months. Applicants need a 625 or higher FICO score, $100k in annual revenue, and at least one year in business.


Alternative lending can be a valuable resource for franchise financing, offering flexibility and speed that traditional lenders may not. However, it's important to carefully consider the higher interest rates and smaller loan amounts. As with any financial decision, it's advisable to research and compare options to find the best fit for your franchise's needs and goals.

8. Using Personal Assets or Credit Cards for Franchise Financing


Financing your franchise through personal assets or credit cards is an option that can supplement your primary funding sources. However, this approach requires careful consideration due to the potential risks involved.

Using Business Credit Cards Responsibly

Credit cards can be a useful tool for short-term financing needs, especially if they offer initial periods with zero interest. They are also beneficial for earning reward points. However, it's crucial to be mindful of the high interest rates that apply after the introductory period. The key is to generate enough revenue in the short term to pay off the balance before accruing significant interest.

Assessing Benefits and Risks

  • Benefits:
  • Control Over Business Equity: Using credit cards allows you to maintain ownership without diluting equity.
  • Access to Low- or No-Interest Capital: Especially advantageous during the introductory period.
  • No Collateral Requirements: Unlike traditional loans, credit cards don't require collateral.
  • Risks:
  • Mixing Personal and Business Expenses: This can lead to financial disorganization and potential tax complications.
  • Credit Damage: High balances and missed payments can negatively impact your credit score.
  • Liability Issues: Personal liability for business debts can be a concern.
  • Insufficient Funding: Credit cards may not provide enough capital for all your startup needs.
  • Qualification Challenges: Not everyone may qualify for credit cards with favorable terms.

Best Practices for Using Credit Cards:

  • Separate Business and Personal Expenses: Obtain different credit cards for business and personal use to avoid commingling funds.
  • Timely Payments and Low Balances: Ensure you pay bills on time and keep balances low to maintain a good credit score.
  • Choose the Right Card: Look for credit cards offering low interest rates over extended periods to minimize costs.


While personal assets and credit cards can offer quick access to funds and help maintain control over your business, they come with significant risks that must be carefully managed. It's important to weigh the pros and cons and take steps to protect your personal and business finances. As with any financing option, thorough research and prudent financial management are key to making this approach work effectively for your franchise.

9. Borrowing from Friends and Family for Franchise Financing


Seeking financial assistance from friends and family is an option when personal savings fall short for funding your franchise. This approach requires careful consideration of your relationships and their financial stability.

Gauging Appropriateness and Pitching Professionally:

  • Assess Relationships: Understand the dynamics of your relationships and the financial security of potential lenders within your circle.
  • Professional Approach: Treat the process as you would with a formal lender. ZenBusiness suggests asking for a loan rather than an equity investment to maintain company ownership and minimize interference in business decisions.
  • Clear Agreements: Provide detailed financial statements and a written agreement outlining loan terms.
  • Legal Structure: Form a corporation or LLC to protect lenders from business debts and liabilities, ensuring they don't lose more than their investment.
  • Expert Assistance: Consider working with a professional or attorney specializing in handling personal loans from friends and family.

Protecting Relationships:

  • Open Communication: Be upfront about your commitment to repaying the loan and discuss your plan to limit discretionary spending until the loan is repaid.
  • Setting Expectations: Prepare for the possibility of being turned down and respect their decision without letting it affect your relationship.

Managing Expectations and Terms:

  • Varied Terms: Friends and family may offer different terms than commercial banks, often based on their personal comfort with risk.
  • Handling Advice: Be prepared to receive unsolicited business advice, especially if the loan involves equity. Small Business Trends offers guidance on responding to such advice.
  • Interest Rates: Some may require interest on the loan as a form of accountability and return on investment. Focus on negotiating a fair interest rate.

Using Loans as a Bridge:

  • Temporary Solution: Consider using these loans as a short-term solution, such as bridging the gap while awaiting approval for other financing options like SBA or bank loans.
  • Avoid Assumptions: Be cautious not to guarantee repayment based on expected loan approvals, as these are not certain.


Borrowing from friends and family can provide vital support for your franchise, but it's essential to approach it with professionalism and clear communication. Protecting your personal relationships while securing funding requires a delicate balance, careful planning, and a clear understanding of the terms and expectations involved. This method should ideally be used as a supplementary option, complementing other more formal financing avenues.

Step into Franchise Ownership with the Right Funding

Entering the world of franchise ownership often means finding the right financial support. It's common for many aspiring franchise owners to need external funding, and the good news is that there are several viable options available. Lenders typically offer financing when they believe in the potential for successful repayment.

Recapping Your Financing Choices:

  • Cash as a Starting Point: Cash is valuable, but combining it with other financing methods can enhance your business scope, allowing for expansion and strategic growth.
  • Internal Franchise Loans: These can offer unique advantages, specifically tailored for franchisees.
  • Using ROBS and HELOCs: Tapping into retirement savings or home equity can provide significant funding for your venture.
  • SBA Loans: Widely used by small businesses, these loans are often well-aligned with the needs of franchise operations.
  • Traditional Bank Loans: They require a comprehensive application process but remain a solid option for those who meet the criteria.
  • Alternative Lenders: Useful especially when traditional bank loans are out of reach, albeit at higher interest rates.
  • Credit Cards and Personal Loans: While accessible, these methods should be approached with caution due to their potential personal and financial implications.

Ready to Build Your Business Dream?

If you're looking to step into the franchise world and build a successful business, I'm here to help. Let's arrange a meeting to discuss how to pair you with the perfect franchise opportunity and find the funding solution that best suits your goals. We can work together to chart out a path that leads to the successful establishment of your franchise.

Reach out to me today for a free consultation, and let's take the first step towards making your business aspirations a reality.