Who is eligible for a franchise loan?

To qualify for a franchise loan, applicants must meet certain criteria. Typically, the key eligibility factors are:

• Steady Cash Flow: A reliable monthly income from employment, business, investments, or other sources is required. This shows the loan provider's capability to make regular loan payments. Income proofs like pay stubs, tax documents, or bank statements may need to be provided.
• Good Credit Record: A healthy credit history and high credit score indicate that the applicant has managed credit obligations well in the past. Many banks or Non-banking Financial Companies (NBFCs) see this as a sign of financial responsibility and set a minimum score threshold.
• Management Skills: Loan providers prefer some experience running a business, as it shows basic business operations knowledge. However, this may not be an absolute necessity if the applicant has transferable management skills.
• Sufficient Investment Funds: Typically, a 20-30% down payment based on the total franchise cost is commonly expected. Applicants need to be able to make this upfront payment from personal equity or other capital sources.
• Realistic Franchise Plan: Preparing a viable business plan projecting reasonable costs, revenues, profit levels and other key financial metrics for the proposed franchise unit is a must. Usually, loan providers thoroughly review this.
• Franchisor Approval: Before a franchise loan can be approved, applicants must meet any net worth, liquidity, or operational experience conditions set by the franchisor.
• Legal Age and Residency: The applicant must meet the minimum age eligibility and residency/citizenship requirements as per lending laws and franchise agreement norms.
• Collateral/Guarantees: While not universally required, pledging personal or business assets as collateral provides loan providers more security, especially for riskier loans.

If applicants  can satisfy these parameters, they stand a good chance of securing franchise financing from lending institutions.