Trends in Franchise Financing

Even if you have a robust savings account, you’ll probably need more than that to launch a franchise. Your ability to qualify for a loan will determine whether you can start the business of your dreams—and sustain it. Beyond your initial investment, you’ll need enough money to cover day-to-day operations, salaries, and equipment costs. By understanding loan requirements and the latest franchise financing trends, you can carefully weigh options and meet lender requirements. This includes:

• Choosing the right funding strategy. Determine which funding options—SBA loans, equipment financing, alternative lenders, or franchisor-backed financing—make the most sense for your business.
• Realizing the impact of interest rates and loan terms. Interest rates influence your total cost of borrowing and can affect profitability and cash flow projections. The lower the rate, the higher your revenue.
• Lowering your risk. Lenders assess risk based on current interest rates and economic conditions. Understanding the economic climate and what lenders look for increases your likelihood of getting approved.

Key Trends in Franchise Financing

Choosing the right financing option is one of your most critical business decisions. From crowdfunding to franchisor programs that offer perks like waived fees or delayed payments to Small Business Administration loans, you can tap into various sources to get started and build momentum.

Rising Interest Rates and Loan Accessibility

Rising interest rates continue to drive up the cost of borrowing, and traditional banks are tightening their requirements as the economy softens. According to data from the Federal Reserve, 43% of lenders apply for loans at large banks, and another 36% apply at small (local/community) banks. Overall, the percentage of applicants receiving 100% of the funding applied for has decreased. Other lenders have also tightened their requirements.

For example, traditional franchise loans backed by the U.S. Small Business Administration (SBA) carry higher interest rates. As of 2025, the typical SBA 7(a) interest rates range from 10% to 12.5%, depending on loan terms and borrower qualifications. That’s because SBA loan interest rates are directly tied to the prime rate and increase when that rate goes up. 

Rising interest rates have also made lenders more cautious about the degree of risk they’re willing to take. Applicants now need higher credit scores and tighter business plans to qualify for the best rates and terms. These requirements can make securing financing more challenging for first-time business owners.

Growth of Alternative Funding Options

Because qualifying for a bank loan is more competitive, more franchise owners are considering alternative funding sources, including crowdfunding, peer-to-peer lending, franchise-specific lending programs, and loan repayment programs based on their monthly revenue.

Crowdfunding

Crowdfunding platforms provide a flexible way for startups to raise money. Prospective owners get capital to build their businesses, and investors either earn rewards like free products or receive equity in your business in exchange for their contributions. You can begin a crowdfunding campaign by pitching your franchising concept or business plan on a crowdfunding platform. Each platform differs in how it rewards contributors and supports investors. 

For example, Kickstarter is one of the most often associated with crowdfunding. A major hub for creative efforts, Kickstarter focuses on project-based funding in anything from food to fashion. According to Statista, Kickstarter has become a powerhouse in crowdfunding, with pledges expected to surpass 8.75 billion U.S. dollars by May 2025. Another platform, Fundable, focuses on helping companies raise money, offering investors both reward-based and equity crowdfunding. In an equity crowdfunding model, entrepreneurs give away shares in their company to investors who then become partial owners. Part of Startups.co, Fundable startups have raised over $466 million in funding commitments. 

Peer-to-peer (P2P) lending 

Peer-to-peer (P2P) lending connects borrowers directly with individual or institutional lenders through online platforms, such as LendingClub or Prosper, where lenders review profiles and choose to fund all or part of companies’ funding requests. Borrowers repay the loan with interest, similar to conventional financing. P2P lending often has fewer requirements than bank loans and approves borrowers with fair credit. However, P2P interest rates can spike upwards of 25% if you have a low credit score. P2P lending is best suited for franchisees or small business owners seeking quick access to moderate-sized loans between $5,000 and $500,000.

Franchise-specific financing 

Franchise-specific financing programs can help you buy or expand your franchise business. Each program addresses the unique needs of a franchise, making it easier and faster for owners to secure capital compared to traditional loans. Some franchisors offer direct financing, while others partner with third-party lenders. These financing packages often have flexible repayment terms, deferred payment schedules, or equipment leasing options. 

Brands like Cruise Planners and Fastsigns provide in-house financing, while other franchisors connect business owners to preferred lenders familiar with their business model and financials. These preferred lender networks streamline the approval process through pre-approved loan packages and may offer lower interest rates or reduced collateral requirements. Some popular lenders in this space include FranFund, Benetrends, and Guidant Financial.

Revenue-based financing (RBF) 

Revenue-based financing (RBF) helps small business owners receive capital from a lender or investor and repay it through a fixed percentage of monthly revenue instead of fixed monthly payments. RBF might be the right option for business owners who need fast access to capital without sacrificing ownership, especially if they post consistent revenue and prefer repayments that flex with their performance. 

Increased Role of Private Equity and Investor Funding

One of the franchise financing trends to note has to do with private equity. Franchises continue to attract interest from private equity investors looking to acquire or expand their portfolios, particularly in industries like home services, fitness, and fast casual dining. Private equity firms like to invest in franchises because they offer predictable income through ongoing fees and royalties. These firms can also consolidate franchise brands in their portfolios, making them more scalable and attractive for resale. Also, because corporate offices typically don’t own real estate, firms can operate with low overhead and increase their profit margins. 

SBA Loans and Government-Backed Financing Updates

The U.S. Small Business Administration (SBA) offers loans to franchise owners that are partially guaranteed by the federal government. Franchisors often assist franchisees with their SBA loan applications. The SBA 7(a) loan program is the SBA’s primary product for general financing. Franchise owners can use this loan to buy real estate, acquire fixed assets, get working capital,  or refinance existing debts. The terms for a 7(a) loan can extend up to 25 years, depending on the franchisee’s intended use of the funds. Interest rates may be higher, fixed (up to Prime + 8%) or variable (Prime + 4.75%). 

Beginning in June 2025, the SBA 7(a) program will reintroduce stricter underwriting standards, including a mandatory 10% cash injection for startups, reinstated insurance requirements, and tax transcript verification. The SBA will also reinstate its Franchise Directory to help lenders verify whether a brand qualifies for financing, streamlining the approval process. These changes aim to promote responsible lending while supporting business development and expansion. 

Unlike the general-purpose 7(a) loan, the SBA 504/ CDC loan program helps franchise owners finance machinery and equipment and can also be used to remodel buildings or buy real estate. The 504 Loan Program recently raised its loan-to-value ratio requirements from 85% to 90% and removed the cap on refinancing existing debt, allowing businesses to refinance up to 100% of their obligations.

Focus on Financial Transparency and Creditworthiness

It pays to get your finances in order before you seek any type of outside funding. Lenders will look at your financial history to determine creditworthiness and your ability to repay loans. They will look at several factors, including your:

• Credit score: A higher score indicates responsible credit management, increasing your likelihood of getting loan approval and the most favorable terms.
• Debt-to-income ratio: This ratio compares your monthly debt to your monthly income. A lower ratio suggests financial stability and capacity to repay loans.
• Credit history: Lenders assess your past borrowing and repayment history to see if you use credit responsibly.
• Collateral: These are the assets you use to secure a loan, which could include your home. 
• Business plan: Your business plan should clearly outline your overall strategy, provide a thorough market analysis, and include sound financial projections. 

Improving these factors can boost your financial profile, increasing your likelihood of securing favorable loan rates and terms.

Best Practices for Securing Franchise Funding

Identifying the Right Financing Option for Your Franchise

Each franchise has different fees, business requirements, and operating models. You may not know how much money you are qualified to borrow or how quickly you can expect to receive it. That’s when it might be a good idea to hire a financial expert with experience helping franchise owners evaluate their funding options, especially if you’re looking to tap into your personal retirement savings. (To access 401(k) savings for startup costs, you must set up your Rollovers for Business Startups (ROBS) with a specialist firm, such as Benetrends Financial, which can manage your transactions.)

The chart below shows the types of loans or financing you might consider, depending on the amount of money you need and how long you’ve been in business. Take all these into consideration in addition to the trends in franchise financing trends.