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Line of Credit for Franchises

Meow Advisory, LLC

Meow Advisory, LLC

Opening a franchise can be an exciting way to own your own business, but it also requires a significant upfront investment. Franchise financing allows entrepreneurs to fund the startup costs of a new franchise location through loans tailored to this type of business.

One option many prospective franchisees consider is a franchise line of credit, which provides access to capital on an as-needed basis. In this comprehensive guide, we’ll explore popular franchise financing options, what it takes to qualify, how to apply for funding, and tips for comparing lending products to find the best franchise line of credit for your business.

Financing Options for Franchises

Before applying for a loan, it’s important to understand the types of financing available to franchise buyers. Common options include:

Commercial Bank Loans

Banks offer term loans or lines of credit that can fund 80-90% of startup costs. Approval requires good credit, collateral, and for established banks to lend to proven franchise models.

SBA Loans

The two most popular Small Business Administration loan programs for franchises are the SBA 7(a) loan which offers up to $5 million for most business purposes, and the SBA CDC/504 loan for major assets like real estate. These government-guaranteed loans make lending franchise applicants less risky.

Alternative Online Lenders

Online alternative lenders provide faster, more accessible business financing. But typically at higher rates and shorter repayment terms than SBA loans. Useful to bridge gaps banks can’t fill.

Franchisor Financing

Some franchisors themselves help new franchisees obtain lending to make buying a location more affordable. This can include preferred lending partnerships, incentives like discounted fees, or direct lending programs.

Other Options

Additional options like 401(k) business financing, securities-backed lines of credit, equipment financing, and hard money loans may provide capital if the above products are unavailable. However, these tend to be more costly forms of financing.

Qualifying for Franchise Financing

Meeting eligibility requirements is key to securing loans for your franchise purchase, including:

  • Positive Personal Net Worth: Lenders want to see your assets exceed liabilities. Newer franchise systems may require candidates to have $500k+ net worth.
  • Available Liquid Assets: Banks usually require 10-30% as a down payment, so franchise buyers will need available funds for that and working capital until profitability.
  • FICO Score Of At Least 600: Applicants should aim for 680+, check their credit report, and fix errors to improve their profile.
  • Financial History Documentation: Have tax returns, financial statements, bank records, and all paperwork granting the franchise license ready for lenders.
  • Collateral: Banks and the SBA require franchise owners to personally guarantee and pledge assets worth more than the loan value to get approved.

How To Get an SBA or Bank Franchise Loan

Franchise financing can take 30-90 days to secure. Here are steps loan applicants should take:

1. Talk To Your Franchisor First

See if they offer direct lending programs or relationships with banks active in SBA lending. If not, they can refer experienced lenders.

2. Make Sure Your Franchise Qualifies for SBA Financing

Not all franchises meet the SBA’s requirements. Consult their Franchise Registry or ask lenders about a franchise’s eligibility.

3. Choose an SBA Lender

Consider banks you already have accounts with first. Weigh factors like experience with franchise lending, application requirements, customer service, rates and terms.

4. Gather Required Documents

That includes personal financial statements and tax returns, resumes, franchise agreements, projections and a business plan.

5. Apply and Get Ready To Supply More Info

Be ready to promptly provide follow-up documents. Lenders will review and verify application details in depth prior to any approval.

6. Await Loan Decision

It takes 1-3 weeks to get SBA loan approval and several more to fund and finalize the loan agreement. Stay engaged in the process with your lender until completed.

Evaluating Franchise Line of Credit Lenders

With all financing, it is smart to compare multiple lenders to find the best rates/terms. Consider the following when evaluating franchise line of credit providers:

  • Loan Amounts Available: Make sure lenders provide enough capital to cover startup costs not financed elsewhere. SBA caps lines at $5 million but most max out under $250k.
  • Interest Rates and Fees: Compare APRs across banks and alternative lenders, plus origination/admin fees. Always model loan costs against your projected cash flows.
  • Time In Business and Revenue Requirements: Finance companies can require anywhere from one to five years operating history. Choose options you qualify for now.
  • Credit Score Minimums: Interest rates improve above 700 FICO but scores as low as 600 may work with the right lender. Know your credit profile.
  • Franchise Experience: Seek out banks and direct lenders experienced in financing new franchise locations. They best understand the models.
  • Discounts and Perks: Check if franchisors offer incentives like waived royalty fees or equipment co-purchasing that reduces overall financing needed.

The Takeaway

Opening a franchise with financing allows entrepreneurs to launch or expand without large pools of personal capital. An informed borrowing strategy is best, so do your due diligence, start applying early, and consult professionals like accountants, lawyers, or financial advisors with franchise expertise whenever you have questions. While the franchise loan process involves rigor, coming fully prepared will set your new business up for success.

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Meow's partner banks can offer:

  • $100K - $5M loans
  • Use of proceeds includes new units, acquisitions, refinances, and recapitalizations
  • Subject to terms and conditions, credit approval, as well as ongoing due diligence
Brokerage services are provided by Atomic Brokerage, LLC ("Atomic Brokerage"), a registered broker-dealer and member of FINRA and SIPC. Neither Meow Advisory LLC nor Atomic Brokerage are a bank. Investments in securities are Not FDIC insured, Not Bank Guaranteed, and May Lose Value. Investing involves risk, including the possible loss of principal. Before investing, consider your investment objectives and the fees and expenses charged. For more details about Atomic Brokerage, please see the Form CRS, General Disclosures, and the Privacy Policy. Check the background of Atomic Brokerage on FINRA’s BrokerCheck. Custodial and clearing services are provided to Atomic Brokerage by Pershing LLC. Technology services may be provided by AtomicVest.

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*Disclaimer: Meow Advisory LLC is a registered investment adviser. Registration as an investment adviser does not imply any level of skill or training.
For accounts opened through Atomic Brokerage LLC: Meow Advisory LLC has an engagement with Atomic Brokerage LLC (“Atomic Brokerage”), a registered broker-dealer and member of FINRA and SIPC , to bring you the opportunity to open a brokerage account. Brokerage services for customers of Meow Advisory LLC are provided by Atomic Brokerage. For more details about Atomic Brokerage, please see the Form CRS, General Disclosures, and the Privacy Policy. Check the background of Atomic Brokerage on FINRA’s BrokerCheck.
For subadvisory services for accounts opened through Atomic Invest LLC: Meow Advisory LLC has an engagement with Atomic Invest, LLC (“Atomic Invest”), an SEC-registered investment adviser, to bring you the opportunity to open an investment advisory account. Investment advisory services are provided by Atomic Invest. Companies which are engaged by Atomic Invest receive compensation of 0% to 0.85% annualized, payable monthly, based upon assets under management for each referred client who establishes an account with Atomic Invest (i.e., exact payment will differ). Atomic Invest also shares a percentage of compensation received from margin interest and free cash interest earned by customers with Meow Advisory LLC. Meow Advisory LLC is not a client of Atomic Invest, but our engagement with Atomic invest gives us an incentive to refer you to Atomic Invest instead of another investment adviser. This conflict of interest affects our ability to provide you with unbiased, objective information about the services of Atomic Invest. This could mean that the services of another investment adviser with whom we are not engaged could be more appropriate for you than Atomic invest. Advisory services through Atomic Invest are designed to assist clients in achieving a favorable outcome in their investment portfolio. They are not intended to provide tax advice or financial planning with respect to every aspect of a client’s financial situation and do not include investments that clients may hold outside of Atomic Invest. For more details about Atomic Invest, please see the Form CRS, Form ADV Part 2A, the Privacy Policy, and other disclosures. Brokerage services for Atomic Invest are provided by Pershing Advisor Solutions LLC (“PAS”), a registered broker-dealer and member of FINRA and SIPC.
Neither Atomic Invest nor Atomic Brokerage, nor any of their affiliates, is a bank. Investments in securities are Not FDIC insured, Not Bank Guaranteed, and May Lose Value. Investing involves risk, including the possible loss of principal. Before investing, consider your investment objectives and the fees and expenses charged by Atomic Brokerage and/or Atomic Invest.
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**Disclaimer: Meow Technologies is a financial technology company, not a depository, bank or credit union, and your account at Meow is not, itself, an FDIC-insured product.

Meow currently partners with three banking providers. Banking services are provided by Third Coast Bank SSB; Member FDIC, Grasshopper Bank, N.A; Member FDIC, and FirstBank, a Tennessee corporation; Member FDIC.

By opening a Maximum Checking account through Meow and if you choose to receive banking services provided by Grasshopper Bank, N.A, you deposit your funds into a deposit account at Grasshopper Bank, N.A. which sweeps those funds into deposit accounts across a network of Federal Deposit Insurance Corporation (“FDIC”)-insured banks, for up to the current standard maximum deposit insurance amount (“SMDIA”) of $250,000 per eligible depositor, per destination institution, for each ownership capacity or category, subject to applicable terms and conditions, including Grasshopper's ICS Deposit Placement Agreement. Grasshopper Bank, N.A. uses a third-party vendor and agent to help administer this sweep process. Visit https://www.intrafi.com/network-banks/ for a list of the banks and savings associations with which we/Grasshopper, N.A. have a business relationship for the placement of deposits at destination institutions, and into which your deposits may be placed (subject to applicable terms with you, and any opt-outs by Grasshopper, N.A. or you). The current maximum deposit insurance amount for your funds is up to $125 million in FDIC insurance through the sweep network of Grasshopper Bank, N.A, subject to change at any time with notice from Meow and/or pursuant to applicable law. Terms and restrictions apply. Subject to applicable rate sheet. Interest rate on checking products quoted in Annual Percentage Yield (APY). Interest rates and yields are effective as per the date on the applicable rate sheet. See applicable terms and restrictions and refer to the applicable rate sheets for additional information.

By opening a Maximum Checking account through Meow and if you choose to receive banking services provided by Third Coast Bank SSB, you deposit your funds into a deposit account at Third Coast Bank SSB. If you also hold funds in a sweep program with Third Coast Bank SSB, Third Coast Bank SSB sweeps those funds into deposit accounts across a network of FDIC-insured banks, for up to the current SMDIA of $250,000 per eligible depositor, per receiving bank, for each ownership capacity or category, including any other balances you may hold at that receiving bank directly or indirectly through other intermediaries, including broker-dealers. Third Coast Bank SSB uses a third-party vendor and agent to help administer this sweep process. Visit Third Coast Bank SSB for a list of the banks and savings associations with which we/Third Coast Bank SSB have a business relationship for the placement of deposits at receiving banks, and into which your deposits may be placed (subject to applicable terms with you, and any opt-outs by Third Coast Bank or you). The current maximum deposit insurance amount for your funds is up to $50 Million in FDIC insurance through the sweep network of Third Coast Bank, subject to change at any time with notice from Meow and/or pursuant to applicable law. Terms and restrictions apply. Subject to applicable rate sheet. Interest rate on checking products quoted in Annual Percentage Yield (APY). Interest rates and yields are effective as per the date on the applicable rate sheet. See applicable terms and conditions and refer to the applicable rate sheet for additional information.

By opening a Maximum Checking account through Meow and if you choose to receive banking services provided by FirstBank, a Tennessee corporation, you deposit your funds into a deposit account at FirstBank, which sweeps those funds into deposit accounts across a network of FDIC-insured banks, for up to the current SMDIA of $250,000 per eligible depositor, per destination institution, for each ownership capacity or category, subject to applicable terms and conditions, including FirstBank's ICS Deposit Placement Agreement. FirstBank uses a third-party vendor and agent to help administer this sweep process. Visit IntraFi for a list of the banks and savings associations with which FirstBank has a business relationship for the placement of deposits at destination institutions, and into which your deposits may be placed (subject to applicable terms with you, and any opt-outs by FirstBank or you). The current maximum deposit insurance amount for your funds is up to $125 million in FDIC insurance through the sweep network of FirstBank, subject to change at any time with notice from Meow and/or pursuant to applicable law. Terms and restrictions apply. Subject to applicable rate sheet. Interest rate on checking products quoted in Annual Percentage Yield (APY). Interest rates and yields are effective as per the date on the applicable rate sheet. See applicable terms and restrictions and refer to the applicable rate sheet for additional information.

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FirstBank’s general policy is to allow you to withdraw funds deposited in your account on the first business day after the day we receive your deposit. Funds from electronic deposits will be available on the day we receive the deposit. In some cases, we may delay your ability to withdraw funds beyond the first business day. Then, the funds will generally be available by the SECOND business day after the day of deposit.