By: IRH Capital on October 30th, 2025

Navigating Franchise Funding [ 2025 ]

Starting or expanding a franchise is one of the most exciting moves an entrepreneur can make. Franchising allows you to step into a proven business model, benefit from brand recognition, and access built-in operational support. But one reality underpins every franchise journey: funding.

Securing the right type and amount of financing is critical. Whether you are looking to buy your first unit, remodel an existing location, or scale into multiple territories, the decisions you make around funding can determine your long-term success.

This article walks through the why, what, and how of franchise funding, so you can navigate the process with clarity and confidence.

Without sufficient funding, even a strong franchise system can falter. According to the Federal Trade Commission, understanding the full financial picture is essential before signing any franchise agreement.

Good financing doesn’t just cover startup costs, it provides breathing room for ramp-up, strengthens credibility with lenders, and keeps your operations steady through the early years. Franchise financing solutions are specifically structured to provide that stability.

Common Franchise Funding Options

Franchisees have more choices than ever when it comes to financing. Each option has its own benefits, drawbacks, and eligibility requirements. Here’s a closer look:

SBA (Small Business Administration–Backed Loans)

SBA loans, especially the 7(a) and 504 programs, are among the most popular franchise funding tools. SBA 7(a) loans can be used for new builds, remodels, working capital, and more. SBA 504 loans are best for major real estate or equipment purchases.

Pros: Favorable interest rates, lower down payments (typically 10%), longer repayment terms (up to 25 years), can borrow up to $5 million.
Cons: Extensive paperwork, strict eligibility, personal guarantee required, and collateral may be needed.

Conventional Bank Loans

Banks and commercial lenders are widely used, especially by franchisees with strong financial backgrounds. These loans may cover new builds, acquisitions, or multi-unit expansions.

Pros: Direct and predictable terms, potentially lower fees than SBA loans, quick approval with strong credentials.
Cons: Require significant collateral, high credit score, larger down payment, and shorter terms than SBA loans.

For many franchisees, a direct lender like IRH Capital can provide an alternative to traditional banks, offering tailored financing options designed specifically for franchise growth, with programs ranging from $10K to $10M.

Franchisor Financing or Preferred Lenders

Some franchisors offer in-house financing or work with preferred lenders familiar with their brand. This can simplify and accelerate the process.

Pros: Faster approvals, tailored loan programs, streamlined application process.
Cons: May be limited in scope, sometimes higher fees or more restrictive terms.

Alternative Funding Options

Rollovers as Business Startups (ROBS): Use retirement funds (like a 401(k)) to invest in your franchise without penalties or taxes (Franchise.org).
Personal Assets: Use savings, home equity, or severance packages.
Crowdfunding: Raise money from the public via online platforms.
Friends and Family: Borrow from personal networks.

IRH Capital often works with franchisees who use alternative funding as part of a blended strategy, layering franchise remodel loans, multi-unit financing, or acquisition financing to round out their capital needs.

Comparison Table: Franchise Funding Options

Funding Option	Pros	Cons / Risks	Typical Requirements
SBA 7(a)/504 Loan	Low rates, long terms, lower down	Paperwork, eligibility, guarantee	Good credit, 10%+ down, collateral
Bank Loan	Predictable, direct, fast	High credit, collateral, large down	High credit, collateral
Franchisor Financing	Fast, tailored, simple	Limited, higher fees	Varies by franchisor
ROBS	No taxes/penalties, no payments	Risk to retirement, IRS compliance	401(k) or IRA, follow IRS rules
Personal Assets	Immediate, no approval	Personal risk, future security	Sufficient savings or equity
Crowdfunding	Flexible, community support	Uncertain, time-consuming	Marketing effort
Friends/Family	Flexible, low/no interest	Relationship risk	Trust, clear agreement

What Lenders Look For

No matter which path you pursue, lenders will expect certain assurances:

A detailed business plan: Include projections, market analysis, and repayment plan (Neighborly).
Personal financial strength: Strong credit (680+), sufficient liquidity, collateral (ADP).
Franchise brand performance: Many lenders prefer SBA-eligible brands with proven track records.
Accurate investment estimate: Cover all franchise fees, build-out, and working capital.
Collateral & Net Worth: Lenders often require assets like real estate or minimum net worth thresholds.

Step-by-Step: How to Apply for a Franchise Loan

Contact the franchisor: Ask about in-house financing or preferred lender programs.
Check SBA eligibility: Ensure your franchise is listed in the SBA Franchise Directory.
Gather financial documents: Credit report, net worth, and proof of liquidity.
Create a business plan: Detailed projections and repayment strategy.
Determine your collateral: Identify what you can pledge.
Compare loan options: Shop multiple lenders for rates and terms.
Submit applications: Provide complete documentation.
Review and finalize: Compare offers, sign agreements, and launch.

Strategy Tips for Smart Funding

Combine sources: SBA + equity + franchisor incentives is a common mix.
Negotiate early: Lock in rates before market shifts.
Plan for multi-unit growth: Build a scalable structure with IRH Capital multi-unit financing.
Leverage brand resources: Use franchisor-preferred lenders.
Be realistic: Avoid over-optimistic projections.

Pitfalls to Avoid

Underestimating working capital.
Over-leveraging debt too early.
Ignoring lender or franchisor criteria.
Choosing quick but costly financing.
Risking long-term security with personal/retirement assets.

Funding With Purpose

Franchise funding is not just about “getting cash to open doors.” It’s about aligning your capital strategy with your broader business vision.

IRH Capital positions franchisees for long-term success through customized financing solutions that support everything from new builds to remodels to acquisitions.

Ask yourself:

What’s my growth timeline?
How much risk am I comfortable with?
How will I maintain cash flow while servicing debt?
How will I prepare for market changes?

Navigating the world of franchise funding takes preparation, research, and strategic decision-making. From SBA loans to specialized programs at IRH Capital, the right mix of financing can provide stability, flexibility, and growth potential.

By treating funding as a strategic tool—not just a hurdle—franchisees can position themselves for lasting success.