Financing Your Franchise

Franchisor-Preferred Lenders

Many franchisors, while not directly involved in financing, have established preferred relationships with banks and other lenders. These institutions have financed loans for other franchisees in the same system, and their experience helps them process future loans to the franchisee's best advantage.

"Preferred lenders are up to speed with what a franchise requires," DeBolt says. "They know about the bankability of the loans and the specific needs of that particular franchise."

Dunkin' Donuts offers a program that provides franchisees financing through two national preferred lenders. The program is available in select markets and provides up to 75 percent of the projected costs to franchisees for developing their networks, including initial franchise fees, working capital, leasehold improvements, vehicles and equipment. Once franchisees complete an evaluation process, they're eligible to apply for financing from a preferred lender, who then makes an independent credit review. Because Dunkin' Donuts provides a limited guarantee to each of its sponsored lenders and covers a portion of each loan, it charges a program fee.

To find preferred lenders, it's best to call the franchise you're interested in and ask if they have one. You can also consult the franchise company's Uniform Franchise Offering Circular (UFOC), a comprehensive disclosure document about a franchised company, for information.

If a franchisor doesn't have a preferred lender, potential franchisees can often find a willing lender by approaching banks that have loaned money to other franchisees in the system. Chances are, the lender will be receptive. To find such franchisees, consult the UFOC.

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This article was originally published in the September 1997 print edition of Entrepreneur with the headline: Financing Your Franchise.

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