How to Finance a Franchise: 7 Options for Funding Your Business

It’s exciting to think about starting your own business, but figuring out how to finance it can feel overwhelming. This is true for start-up businesses as well as investing in a franchise. The good news? You have more funding options than you might think, and we are here to guide you through them. With Neighborly®, you have the support, training, and financial coaching to help you make informed decisions even before you open your doors. 

Whether you're just beginning to explore franchise business opportunities or you’re ready to start your franchise business today, understanding your financing options is the first step to success. Read on to learn 7 ways to finance your dream of franchise ownership today! 

What You Need to Know About Financing a Franchise 

Franchise financing is a crucial aspect of franchise ownership, as it enables potential franchise owners to secure the necessary funds to purchase and operate their franchise. With various franchise financing options available, including SBA loans, conventional loans, and alternative funding sources, franchise owners can choose the best option that suits their financial situation and business needs.  

The Small Business Administration (SBA) plays a significant role in franchise financing, providing guarantees for loans and making it easier for small businesses to access capital. By exploring and comparing different financing options, potential franchise owners can find the most suitable funding solution to turn their dream of franchise ownership into reality. 

If this information overwhelms you, don’t worry. There are experts at Neighborly who can help you walk through your options, but what you should take away is that there are many different ways to fund a franchise business. 

1. SBA Loans: A Popular Starting Point  

When people ask, "Can I get a loan to buy a franchise?" the first answer is usually the same: “Let’s look at Small Business Administration (SBA) loans”. SBA Funding Programs are federal financing programs set up specifically for small business owners. For this reason, through the SBA Funding Programs, you can access some of the best small business loans currently available. That’s because these loans typically feature lower down payments, longer repayment terms, and competitive interest rates, making them a great choice for many new franchise business owners. Like traditional loans, SBA loans can not only be used for the initial investment cost but also for acquiring fixed assets like a work vehicle and working capital, too. 

2. Traditional Bank Loans  

Another solid option for small business financing is a traditional bank loan. These loans are typically offered by banks or credit unions, so if you are currently a member, this might be an accessible way to go. To qualify for a traditional bank loan, you’ll likely need (at a minimum) a strong credit score, a solid business plan, and some collateral. Having a good credit history can enhance your chances of securing financing from banks and other lenders. 

Some bank and credit union lenders also specialize in traditional bank loans for small businesses, including franchise businesses. Check out the list of Best Business Loans for 2025 to get more information and to compare your options. 

3. Franchises That Offer In-House Financing  

Beyond banks and SBA loans, some franchises offer financing directly to franchise business owners. These programs can be great for new business owners, ensuring you launch faster and more easily. At Neighborly, we assist our new franchise business owners in locating the best financing option for their particular situation, including connecting them with qualified third-party lenders. You can also explore financing opportunities by contacting us.  

4. 401(k) Rollovers or ROBS

Yes, you read that right! If you have a 401(k), IRA, or other retirement savings fund, you can use it to finance your franchise business. In most cases, you can even do so without getting hit with early withdrawal penalties. This method, called a Rollover for Business Startups (ROBS), allows you to use your 401(k) or IRA to invest in your business. Using retirement funds can be a low-impact option for financing a franchise that many new business owners often do not know about. 

Learn more about this powerful option in Can You Use Your 401K to Buy a Franchise? And as always, be sure to consult a financial professional before pulling money out of any retirement account. 

5. Equipment and Asset-Based Loans  

If your franchise business requires the purchase of equipment, vehicles, or real estate, you might qualify for asset-based lending.  Equipment and asset-based loans are an additional type of loan that is secured by the equipment itself. For this reason, it can be a smart way to lower upfront costs while still securing what you need to run a successful operation. Fixed-rate financing for asset-based loans can help borrowers manage their expenses over a predictable payment schedule.  

All franchise businesses vary, so make sure you get full details on all required startup costs and expenses before entering into any loan agreement. 

6. Alternative Lenders and Financing  

If traditional bank loans and other forms of financing aren’t within reach, your next best option may be to look for alternative lenders and financing options. Not every entrepreneur fits the "traditional bank" profile — and that's okay! Lending companies and others specialize in providing fast, flexible financing solutions for small business owners who may not be able to secure financing in other ways. If you're eager to know how to finance a business quickly without jumping through endless hoops, alternative lending could be a good fit for you. 

7. Friends, Family, and Private Investors  

Finally, it’s important to consider looking for financing among the people who believe in you the most. Friends, family, and private investors could be one of the best funding sources for certain situations. You may also want to consider starting your franchise business with a business partner to help ease the burden of financing and bring valuable assets into your business. This is becoming more common as franchise owners look for ways to secure investments or loans outside of more formal programs. If you do decide to go this route, make sure to treat any loan or private financing like a formal business transaction. You should seek advice from an attorney to ensure the transaction is properly executed and documented. 

Quick Tips for Picking the Right Franchise Financing Option 

With so many financing options available, choosing the right funding source for your franchise business can feel like a big decision. To make narrowing down your selections easier, here are a few tips to consider: 

• Match your loan terms to your business goals and timeline.   
• Compare multiple offers and interest rates. 
• Consider a franchise loan as a financing option, including SBA franchise loans, for their advantages, such as lower down payments and longer terms. 
• Find the right franchise that aligns with your financial goals and explore various financing options, such as franchisor-assisted financial programs, traditional, and SBA loans. 
• Don’t be afraid to ask for help! At Neighborly, we offer expert resources like our How to Finance Your Franchise blog and full Franchise Ownership Guide!

Want a deeper dive? Watch our Financing a Franchise 101 on-demand session for even more expert advice!