Launching a franchise is one of the most reliable paths to entrepreneurship, but even the strongest franchise system requires working capital to get off the ground. Understanding how business loans for franchise startups work—and how to choose the right lender—can dramatically increase your odds of long-term success. This in-depth guide explains everything you need to know, from loan types and qualifications to step-by-step application strategies and real-world examples, all backed by the latest insights from trusted industry sources.
According to the International Franchise Association and recent reporting from CNBC.com, demand for franchised businesses continues to rise as more entrepreneurs seek proven business models and recession-resistant opportunities. As that demand grows, so does the number of funding options available to new franchisees, including SBA loans, equipment financing, unsecured working capital, and custom franchise funding programs specifically designed for new owners.
This editorial will help you navigate your options, understand what lenders look for, and determine how to secure the right funding for your franchise.
Business loans for franchise startups are financing products designed to help new franchise owners cover the upfront costs of opening a franchised location. These loans may be used for:
• Franchise fees
• Real estate build-out
• Equipment and inventory
• Staffing and payroll
• Working capital
• Marketing launch costs
• Technology and software
• Licensing and insurance
Unlike funding for independent small businesses, franchise startup loans consider both the borrower’s qualifications and the strength of the franchise system itself. Many lenders view established franchise brands as lower-risk because they come with proven operating procedures, training, and support.
Accessing the right financing early on can accelerate growth and improve your odds of profitability. Key benefits include:
• Lower perceived risk thanks to the proven franchise model
• Flexible use of funds for build-out, inventory, staffing, and working capital
• Longer repayment terms compared to traditional business loans
• Competitive rates through SBA programs
• Opportunity to grow multiple units with scalable funding options
• Ability to preserve personal cash while investing in a high-growth asset
• Stronger lender approval odds when working with franchise-friendly lenders
While every lender has unique requirements, the franchise loan process typically follows these steps:
Most franchises provide an FDD (Franchise Disclosure Document) outlining startup costs, working capital needs, franchisor support, and financial performance. This document is essential for both borrower planning and lender underwriting.
This includes franchise fees, real estate or lease expenses, equipment costs, training, and initial working capital. According to SBA.gov, most franchise locations require between $75,000 and $2 million depending on industry and brand.
Lenders will examine credit history, liquidity, assets, and any prior business experience. Some require a minimum credit score between 650 and 700 for SBA loans.
You may combine multiple financing products to cover total costs, such as an SBA 7(a) loan plus equipment financing and working capital.
Typical documents include tax returns, bank statements, business plan, franchise agreement, entity paperwork, and liquidity verification.
Lenders review your qualifications, evaluate the franchise system, and determine risk level.
Once approved, funds are disbursed for equipment, construction, franchise fees, and other launch needs. Some lenders release funds in stages depending on milestones.
There are several funding products available for new franchise owners, each suited to different needs and financial profiles.
SBA loans are among the most popular financing methods for franchises. They offer:
• Low interest rates
• Terms up to 10–25 years
• Small down payments
• Use of funds for most startup costs
SBA loans are backed by the government but funded through approved lenders such as banks, credit unions, and nonbank providers. According to Forbes.com, SBA programs remain the top choice for franchise financing due to competitive rates and long-term flexibility.
Designed primarily for real estate and heavy equipment purchases, SBA 504 loans provide long-term, low-rate financing for fixed assets.
Some lenders offer tailored loans for popular franchise brands, simplifying approvals because they already understand the business model and expected ROI.
If your franchise requires equipment—kitchen appliances, vehicles, POS systems, or manufacturing tools—equipment financing can cover up to 100% of the cost.
Short-term working capital may be needed during the first 6–12 months of operation. These loans help cover payroll, marketing, inventory, and ongoing expenses.
A revolving line of credit provides flexible access to capital for unexpected expenses and growth opportunities.
For borrowers with strong credit, unsecured franchise loans may provide funding without collateral.
This IRS-approved method allows eligible entrepreneurs to use retirement funds (401(k), IRA) to start a franchise without incurring early withdrawal penalties. While Crestmont Capital does not provide legal or tax advice, many franchisees use this option to reduce loan dependence.
These financing options typically work best for:
• First-time franchise owners
• Existing franchisees expanding into new units
• Entrepreneurs with strong credit but limited liquidity
• Borrowers seeking low-interest, longer-term loans
• Owners building out multi-unit franchise portfolios
• Franchise brands with proven systems and performance data
• Operators seeking predictable, stable business models
Because franchise systems include training, marketing, and operational support, they are often ideal for owners who want business independence without the uncertainty of a standalone startup.
Choosing the right financing solution requires understanding how franchise loans compare to other business funding tools.
Traditional small business loans may require more collateral and higher credit scores, as independent businesses pose more risk. Franchise loans often secure better terms due to the franchise model’s proven track record.
Personal loans typically offer far less capital and shorter repayment terms. They may help bridge small gaps in funding but are rarely sufficient for a full franchise build-out.
Equity partnerships may reduce personal financial risk, but they require giving up ownership stake and ongoing profits. Debt funding allows you to retain full control.
ROBS avoids monthly payments but requires managing a retirement-based corporate structure. Many owners pair ROBS with SBA loans to meet down payment requirements.
Crestmont Capital provides customized financing solutions for both new and experienced franchise owners. Whether you’re opening your first location or scaling to multiple units, Crestmont Capital streamlines the funding process with franchise-friendly programs and fast approvals.
Key advantages include:
• Access to SBA, equipment financing, and working capital solutions
• Streamlined application support for new franchisees
• Flexible programs for multi-unit expansion
• Industry expertise across food service, retail, automotive, health, and professional service franchises
• Faster approvals compared to traditional bank processing
Helpful resources on CrestmontCapital.com include:
• Funding options overview: https://www.crestmontcapital.com/business-loans
• Working capital solutions: https://www.crestmontcapital.com/working-capital
• SBA loan programs: https://www.crestmontcapital.com/sba-loans
• Equipment financing options: https://www.crestmontcapital.com/equipment-financing
Crestmont Capital’s team works directly with franchisees to assess needs, match funding programs, and guide applicants through the underwriting process.
Here are several examples illustrating how franchise startup loans support new business owners in different industries.
A new franchise owner needs $450,000 to cover build-out costs, equipment, franchise fees, and opening inventory. They secure an SBA 7(a) loan with a 10% down payment and choose equipment financing for kitchen appliances, reducing upfront cash requirements.
The franchisee requires $275,000 for lease improvements, branded equipment, and presale marketing. They combine a franchise loan with a business line of credit to manage cash flow during the first six months of membership buildup.
With a lower entry cost of $150,000, the owner uses unsecured startup financing to cover the franchise fee and working capital while avoiding collateralized loans.
An experienced operator wants to open two additional units. They use their performance history to secure a larger SBA loan with competitive terms, leveraging the strong financials of their existing locations.
Because the business requires specialized machinery, the owner pairs an SBA 504 loan for major equipment with a working capital product to cover staffing and marketing costs.
The franchisee uses a mix of equipment financing, working capital, and a small unsecured loan to complete the build-out on a shorter timeline before peak traffic season.
Most lenders look for a credit score between 650 and 700 for SBA loans. Alternative lenders may accept lower scores based on franchise strength and financials.
Down payments typically range from 10% to 30% depending on the loan program and overall project size.
Some unsecured franchise loan programs exist, especially for lower-cost service franchises, but larger projects often require collateral or cash injection.
SBA loans may take 30–90 days. Equipment financing and unsecured loans may fund in as little as 7–14 days.
Yes. Many franchisees use a blend of SBA loans, equipment financing, working capital, and credit lines.
Often yes. Lenders view established franchise systems as lower-risk because they have proven operating models and support structures.
Absolutely. Many franchise owners are first-time business operators. Strong credit, liquidity, and a solid business plan typically matter more than past business experience.
If you’re ready to move forward with funding for your franchise startup:
Review your franchise’s FDD and total estimated startup costs.
Determine how much you can contribute toward the project.
Identify the right loan type—or combination of loans—for your business model.
Prepare financial documents and business plans.
Speak with experts who specialize in franchise startup funding.
Crestmont Capital can help you evaluate your options, match with the right lender, and streamline the approval process so you can open your franchise with confidence.
Securing business loans for franchise startups is one of the most important steps in launching a successful franchised business. With the right funding strategy, you can access the startup capital you need while preserving cash flow and positioning your business for long-term growth. Whether you pursue SBA loans, equipment financing, working capital, or a blended approach, understanding your options—and working with a trusted partner like Crestmont Capital—can make the entire process faster, smoother, and far more predictable.
Disclaimer:
The information provided in this article is for general educational purposes only and is not financial, legal, or tax advice. Funding terms, qualifications, and product availability may vary and are subject to change without notice. Crestmont Capital does not guarantee approval, rates, or specific outcomes. For personalized information about your business funding options, contact our team directly.