Franchise Financing: How to Find Funding

One of the biggest concerns for prospective franchise owners is the cost of entry. Franchise fees and startup costs can seem overwhelming, especially if you’re new to franchising. Whether you're looking at a well-established franchise with significant upfront investment or a more affordable opportunity, understanding your financing options can help you make the best decision for your future.

Funding Options

When it comes to franchise financing, several avenues are available:

Franchisor financing. Some franchisors offer partial financing directly through the parent company, but more commonly, they partner with 3rd party preferred lenders who are familiar with the brand and willing to administer loans to qualified candidates.

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 over-extended in the future.

Rollovers as business startups (ROBS). ROBS are a method of withdrawing money from 401(k) or other retirement savings accounts to fund a new business without incurring penalties. Although completely legal, this approach may attract closer scrutinization from the IRS, so you must be sure that everything is done by letter of the law.

Commercial bank loans. Prospective franchisees can apply for a commercial business loan with the bank of their choice. Bear in mind that approval typically depends on a good credit rating and detailed business plan to even qualify. Some of these loans also require an upfront deposit and come with varying interest rates and installment terms for repayment.

Small business association (SBA) loans. SBA loans for franchising are like bank loans except the SBA guarantees a portion of the loan amount, making them more attractive to lenders. SBA loans can also be easier for small businesses to get and often have better rates and terms than loans from a bank. Many reputable franchises are approved by the SBA and included in their official Franchise Directory, including Two Maids.

Alternative lenders. These may be an option if you are unable to secure a commercial or SBA loan. 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.

Friends, family, and crowd funding. For those who lack capital or have less than stellar credit, borrowing from friends and family may be an option. Just be mindful of personal and professional boundaries; it is advised to set 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.

Qualification for franchise financing varies by lender and loan type. Generally, you'll need a good to excellent credit score, a solid business plan, and some form of collateral. For SBA loans, specific eligibility requirements must be met, including being a for-profit business and operating in the U.S. Demonstrating experience in the industry or a strong managerial background can also bolster your application.

Find Your Financial Footing with Two Maids

Two Maids provides in-house financing of up to $32,000 to qualified candidates. In addition to that, your investment grants you access to a low-cost residential cleaning franchise with exceptional training, ongoing support, and marketing assistance to run your business within the Home Franchise Concepts family of brands. To learn more about the Two Maids franchise, inquire now.