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Best Restaurant Loan Options for Food Franchises

  • November 12, 2016

The fast food industry in the United States generated about $200 billion in revenue in 2015, and it’s projected to grow by about 2.5 percent a year. By investing in a food franchise like Hot Dog on a Stick, you can enter this growing industry with a proven business model and invaluable training and support from an experienced franchisor. However, if you’re like most new franchisees, you’ll need to obtain financing to get your business up and running. Continue reading to learn more about how to obtain financing for the cost of opening a restaurant franchise.

cost of opening a restaurant franchise

How to Cover the Cost of Opening a Restaurant Franchise

There are a variety of funding sources available to cover the cost of opening a restaurant franchise, but finding the ideal fit for your situation and needs can be a time-consuming and difficult task. To help make it easier, we’ve put together this list of restaurant loan options for you to investigate.

Small Business Administration (SBA) Loans

If a food franchise is your first foray into the business world and you have no borrowing history, you may find it easier to get the financing you need through an SBA loan program than through a bank. If you decide to go this route, it’s wise to get the advice of a financial professional like a CPA to help you apply because the application has to be made through an SBA-approved lender and the process is often lengthy and complicated.

Franchisor-Recommended Lenders

Most franchisors offer some form of assistance to franchisees who are looking for financing. Some companies offer in-house financing for new franchisees, while others can put you in touch with third-party lenders who are familiar with the brand and/or have provided loans for franchisees in the past.

Equipment Leasing Options

Sometimes, it’s possible to lease the restaurant and office equipment needed to set up a food franchise instead of borrowing to make an outright purchase. Ask your franchisor if this is a possibility and if there is a pleasing company it recommends that offers competitive terms and interest rates.

Second Mortgage or Home Equity Line of Credit (HELOC)

If you have ample equity built up in your home, a second mortgage or a line of credit may be a viable source of funding for your food franchise.

Traditional Loans

While traditional lenders like banks and credit unions offer business loans, they typically require one to two years of positive cash flow and some form of collateral, so getting approved can be challenging. However, if you’ve borrowed from a particular lender for other business ventures and have a good repayment history, the lender may be more inclined to approve your loan application to finance a new restaurant.

Online Financing Portals

There are a variety of online financing portals that can give you access to lenders you might not find on your own. Typically, the loan application process through these portals is streamlined, with faster approval and disbursement timeframes, too.

Borrowing from Your Retirement Accounts

If you have retirement savings in a 401(k) or self-directed IRA, you may be able to take advantage of a Rollover for Business Startups (ROBS) to finance your franchise purchase. The process is complex and has legal and tax implications, so it’s advisable to work with a CPA or financial planner experienced in handling ROBS transactions. Since this isn’t technically a loan, you won’t owe interest or add to your debt, but you can expect to pay a one-time setup fee and ongoing monthly monitoring fees.

To learn more about your options to cover the cost of opening a restaurant franchise like our Hot Dog on a Stick franchise opportunity, contact us today!