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Can I Get a Franchise Loan with Bad Credit?

All USA Franchises February 18, 2021
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The thought of owning your own business can be exciting. Buying a franchise is one of the best ways to do this. With a franchise, you have the benefit of buying a business with an established brand, customer base, products, and operational methods that have already been established. You eliminate a lot of the uncertainty that comes with starting a brand-new business. For these reasons, thousands of Americans each year purchase franchises and become independent business owners.

Elderly Couple Purchasing a Franchise
Buying a franchise, like any other business, requires money. There are many loan options available for financing a franchise, but if you are one of the millions of Americans with no established credit or outright bad credit, you might be wondering if you can ever fulfill the dream of buying a franchise. We're not going to tell you that it's easy to buy a franchise with bad credit, but we can tell you that it's not impossible.

Buying a Franchise With Bad Credit

Having issues with your credit makes it more challenging to qualify for a franchise loan. Getting any loan can be difficult if your credit isn't perfect. If you have a bunch of bankruptcies or have any judgments or tax liens against you for any reason, this can also make it difficult to get a loan. The chances are that most financial institutions will not even consider giving you a loan. If you've had a few minor financial issues in the past, such as unpaid bills or missed payments, there's still a chance you can get the loan you need to buy your franchise. Keep in mind what a lender is likely to look for when you apply for a loan. They will want to know how much you have to invest on your own, they will ask if you have any collateral, they will take a look at your credit history, and in some cases, they will want to see if you have experience in the industry of the franchise you want to purchase.

Business Man Pressing a Screen Button That Says Credit Score
The first thing to do when you suspect you have less than perfect credit is to get a credit report from the major credit reporting agencies. Check your credit scores before you even apply for a loan for a franchise. You might find that you can address some of the issues ahead of time and save yourself time and energy. Do you have any outstanding credit issues you can clear up before you apply for a franchise loan? In many cases, you can pay off any outstanding debts you have and have those removed from your credit report.

If you know you have a less-than-perfect credit score and you want to pursue a loan, you can always look for a franchise that will finance for you. There are some franchise opportunities out there that will finance the franchise themselves. This is a good way for franchise businesses to get franchisees on board. Since the franchisor is well aware of their franchise business's success or failure rate, they are fairly certain they will get their money back. This makes it a win/win situation for the franchisor, who can bring more franchisees on board, and for the franchisee that is wondering about how they will be able to finance their business. In these situations, payments for the franchise are made along with all of the other fees associated with the franchise.

Credit Record Sheet on a Table With a Coffee Cup

Small Business Loan (SBA)

The best chance to secure a loan for a franchise if you have bad credit is with a loan from the Small Business Administration. This is because the government guarantees a percentage of SBA loans, which means there is less risk on the part of the lender, making your credit a smaller factor in securing the money you need for your franchise. Most lenders would rather work under this type of arrangement, especially when working with someone who has bad credit or no credit. Keep in mind, you will have to be turned down for a bank loan before you can qualify for the SBA loan. When a bank turns you down, that same bank or any other bank can submit your loan application to the SBA for consideration. As part of the process of qualifying, the SBA will take a closer look at the franchise you want to buy as well as the borrower.

Some qualifications must be met. One, the franchise must be considered small, meaning less than $13.5 million in retail or service-related sales, it must be located in the United States or U.S. governed territory, and it has to be a for-profit business. Second, the SBA will examine the stability of the franchise financially and will look at franchise marketing. The SBA will also ask that you have some cash of your own to put toward the business and will give special consideration if you have enough collateral to cover all or part of the loan. The SBA will still examine your credit and they will look at your personal experience. If your credit is bad, your best option for a franchise loan is through the SBA's MicroLoan Program.

Contract on a Table With a Read Seal That Says Loan Denied

Additional Avenues for Purchasing a Franchise With Bad Credit

While none of these methods for securing a loan are guaranteed, they are options if you have run out of choices:
  • Non-Profit Community Development Programs
  • Investors
  • Asset Leveraging
  • Taking on Partners
  • Applying for a Grant
  • Finding a Co-signer
Paper Sheet With Credit Balance and the Words SBA Loan Underlined

All USA Franchises Provides Resources and Information

All USA Franchises is on a mission to list all 3000 plus franchises in the U.S., making us the largest FREE franchise directory. We make it easy for you to find the perfect franchise opportunity to fit your needs. You can start your franchise search and locate the perfect franchise by industry or by investment, which lets you tailor your search to only those franchise opportunities that meet your specific criteria.

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