What are the typical requirements for obtaining a franchise loan?

When applying for a franchise loan, certain requirements are commonly expected. These may differ depending on the institution, but the typical ones are:

• Detailed Franchise Plan: A comprehensive document covering the key aspects of the proposed franchise unit is usually required. This business plan should project costs, target revenues, competition analysis, and loan utilisation details.
• Healthy Credit Record: Usually, banks/financiers assess the applicant's past credit usage and payment behavior through credit reports and scores. Typically, a credit score of 700+ and no defaults or bankruptcy history supports loan qualification.
• Upfront Capital Investment: Typically, 20-30% of the total franchise setup costs is expected to be ready as a down payment or initial contribution. Proof of sufficient personal capital may need to be provided.
• Evidence of Steady Income: Generally, submitting income tax returns, recent pay slips, bank account statements or other earnings documents usually helps establish consistent income generation ability to repay the loan.
• Relevant Management Expertise: Though not an absolute necessity, some experience in business operations or an entrepreneurial background strengthens the application.
• Potential Collateral Assets: Pledging property, equipment, or other assets as collateral security may be required, especially for riskier applicants or start-up franchisees.
• Signed Franchise Agreement: Usually, the franchisor approval letter and executed legal franchise agreement documents may have to be shared with the loan provider.
• Personal Identification Information: Generally, Valid Know Your Customer (KYC) documents, citizenship/residency proofs, photographs, and other personal credentials may have to be submitted to meet the loan provider’s eligibility norms.

By satisfying these key prerequisites, aspiring franchise owners can boost their chances of getting franchise  loans from lending institutions.