How To Get a Loan for Your Franchise Business

There are many advantages to getting a franchise over starting your business concept from scratch. Often, franchisors will provide you with the tools you need to succeed because it is also in their best interest for your endeavor to flourish.

However, one primary consideration when getting a franchise would be the required investment.

The initial investment of a small food kiosk franchise could cost anywhere from PHP 50,000 to PHP 2,500,000, while the franchise cost alone from a big-name fast-food business can set you back up to more than PHP 3,000,000.

If you’re fortunate enough or if the franchise you’ve chosen is small enough, you may have enough personal funds to get the ball rolling. In most other cases, a franchise loan might be your best option. 

Related: Best Business Loans for Startups and SMEs in the Philippines 

Table of Contents

Watch Video: How To Get Funding for Your Franchise Business

How To Get Funding for Your Franchi...
How To Get Funding for Your Franchise Business

At a Glance: Best Franchise Business Loans in the Philippines

1. Franchise Loans

Franchise Business LoanLoan AmountLoan TermInterest Rate
 UCPB BizEasy Franchise Loan (Unsecured | Term Loan)Minimum of PHP 100,000 | Maximum of PHP 1,000,000.Choose from 12, 24, or 36 months.Use their calculator here.
Security Bank Franchise Loan (Unsecured | Term Loan)Minimum of PHP 500,000 | Maximum of PHP 5,000,00012, 18, 24, & 36 months1.40% to 1.85%
Blend.ph Franchise Loan (Unsecured | Term Loan)Minimum of PHP 50,000 | Maximum of PHP 2,000,00012 to 36 months2%

2. Other Business Loans

Business LoanLoan Amount
Radiowealth Finance Co. Business LoanPHP 10,000 – PHP 3,000,000
Vidalia Small Business Term LoanPHP 10,000 – PHP 100,000
Citibank Personal LoanPHP 100,000 – PHP 2,000,000
Esquire Non-Collateral Business LoanPHP 100,000 – PHP 10,000,000
First Circle Revolving Credit LinePHP 250,000 – PHP 5,000,000
CTBC SME Business LoanPHP 500,000 – PHP 70,000,000
CTBC SME Revolving Credit Line LoanPHP 500,000 – PHP 70,000,000
BDO SME Term LoanPHP 1,000,000 – PHP 20,000,000
BDO SME Ready CheckPHP 1,000,000 – PHP 20,000,000
PSBank SME Term Loan With Prime RebatePHP 500,000 – PHP 2,000,000
 

The Different Ways of Funding Your Franchise

1. Personal Funds or Self-Financing

The most immediate way of funding any business endeavor, including a franchise, would be to use your money. It is the fastest way but also one of the riskier ways of financing your business. If you don’t manage your expenses well, you could be eating into the money you need to cover your living expenses, putting a great deal of strain on your personal and family life. 

On the flip side, using your funds gives you better control over the business since you would have a complete overview of how much you have left to fund your business. It also forces you to manage your financials, including your business and personal expenses. 

Regardless, this is a viable option if you have enough personal savings set aside to cover the cost of your franchise on top of what you need for your living expenses and emergency funds

2. Investments From Friends and Family

Another common way of financing a franchise is to ask for investments or loans from family or friends. Some of the most significant advantages of doing business with them are that you will likely get a loan faster and at more favorable rates and manageable payment terms than any financial institution. The drawback is the possible risk and strain you put on your relationships with your family and friends, especially if you cannot pay back or if things turn for the worse for your business. 

You must treat it like a formal business deal to avoid this situation. Draft a document or contract of agreement that indicates the details and terms of the investments or loans you got from your friends and family. Present a clear business plan and explain the potential risks to them to avoid straining your relationship in the future. 

3. Franchise Loans

Some banks and private lenders offer special business loan packages that cater to franchises, aptly called franchise loans. Often, it’s easier to get a franchise loan than a traditional term or credit line business loan. This is because there is a lower risk for a financial institution to lend money to a business backed by a franchise with a proven track record of success.  

This also works out for you because there is a much higher chance of getting a franchise loan without being required to provide collateral as security, reducing your overall risk. 

4. Other Business Loans from Private Lenders & Commercial Banks

Banks and private lenders also offer a variety of other “non-franchise” business loan options, including term and credit line loans that may or may not require collateral as a security for your loan if you cannot pay it back.  

  • Bank loans often have cheaper interest rates, higher loan limits, and no hidden fees compared to private lenders. They will usually require more documentation and have more stringent loan requirements. 
  • On the other hand, private lenders require less documentation and have lower minimum loan requirements. They are frequently a quicker and easier way to obtain a loan but usually at the cost of higher interest rates imposed by the private lender. 

For more information on the different types of business loans, such as term, credit line, secured and loans, refer to this article: How To Get Business Loan: Guide to the Best Business Loans in the Philippines for Startups & SMEs. 

 

Updated List of Available Franchise Loans in the Philippines

1. UCPB BizEasy Franchise Loan (Unsecured | Term Loan)

franchise loan philippines 1

a. Best For: Funding smaller franchises such as food and beverage kiosks, water stations, ink stations, and financial service franchises. 

b. Loan Amount: Minimum of PHP 100,000 | Maximum of PHP 1,000,000. The loan amount may cover up to 60% of the Total Investment Cost (Franchise fees, construction costs, and other capital expenses). 

c. Loan Term: Choose from 12, 24, or 36 months loan terms. The loan must be co-terminus (ends simultaneously) with the franchise agreement. 

d. Interest Rate: Use their calculator here

e. Eligibility Requirements

  • Small and Medium Enterprise Classification 
  • SEC or DTI Registered 
  • Filipino-owned and established company 
  • At least 3 years as Franchise Operator 
  • With at least 3 company-owned and 3 franchise outlets 
  • Preferably a member of any recognized franchise or business group (i.e., Philippine Franchise Association and Association of Filipino Franchisers Inc.)

2. Security Bank Franchise Loan (Unsecured | Term Loan)

franchise loan philippines 2

a. Best For: Funding medium-scale franchises such as small bakeries, cafes, pharmacies, meat shops, and more. 

b. Loan Amount: Minimum of PHP 500,000 | Maximum of PHP 5,000,000.

c. Loan Term: 12, 18, 24, & 36 month options available.

d. Interest Rate: 1.40% to 1.85%, depending on the loan term.

e. Eligibility Requirements

The businesses to which the loan will be applied must meet the following criteria: 

  • Duly registered to operate as a business in the Philippines; 
  • Must have been operating for at least 3 years and profitable for the latest 1 year; 
  • Must have no outstanding debt that exceeds 40% of the company’s monthly income.

Each franchise loan must be tied to the business’s primary owner; for partnerships/corporations, this means: 

  • The owner with a simple majority (individual with the single largest stake in the company) must provide details and sign off on the loan application form, and ultimately be the signatory in the surety agreement before loan booking. 
  • If a simple majority is shared across multiple owners, only (1) of them is required to sign off on the loan.  

Identified business owners will then be required to have: 

  • An existing account with Security Bank (at least 6 months old with PHP 50K ADB) OR existing credit card (any bank; credit card number/s must be provided in the application);
  • Permanent residency in the Philippines;
  • At least 21 years of age at the time of application and not more than 65 years upon maturity of the loan.

3. Blend.ph Franchise Loan (Unsecured | Term Loan)

franchise loan philippines 3

a. Best For: People who need extra funding and want to franchise any of the partner brands of Blend.ph. You can check the list of partner brands at the links below: 

b. Loan Amount: Minimum of PHP 50,000 | Maximum of PHP 2,000,000 

c. Loan Term: 12 to 36 months. 

d. Interest Rate: 2%.

e. Eligibility Requirements: These will be displayed by filling up their loan calculator here.

 

Other Business Loans You Can Consider for Your Franchise

1. PHP 500,000 or Less Minimum Loan Amount

  • Radiowealth Finance Co. Business Loan (Loan Amount: PHP 10,000 to PHP 3,000,000) – Best for specific equipment purchases ranging from appliances to trucks. Offers a great deal of flexibility because of its low loan limit of PHP 10,000.
  • Vidalia Small Business Term Loan (Loan Amount: PHP 10,000 – PHP 100,000) – Most flexible repayment schedule with daily, weekly, and bi-monthly repayment options. Ideal for securing cash to purchase small equipment such as appliances and funding small franchises such as food kiosks and small bakeries. 
  • Citibank Personal Loan (Loan Amount: PHP 100,000 to PHP 2,000,000) – Good for flexibility and speed. You can get your loan approved in as fast as 24 hours. Good option if you need quick cash to purchase added inventory for food kiosks, bakeries, cafes, and groceries. 
  • Esquire Non-Collateral Business Loan (Loan Amount: PHP 100,000 to PHP 10,000,000) – Offers similar flexibility to a franchise loan where you can get a high loan amount without the need to provide collateral. 
  • First Circle Revolving Credit Line (Loan Amount: PHP 250,000 to PHP 5,000,000) – Best for franchise businesses that receive purchase orders and issue invoices. Receive money in your account in as fast as 5 days from the approval of your loan.
  • CTBC SME Business Loan (Loan Amount: PHP 500,000 to PHP 70,000,000) – Best for long-term financing needs and for refunding your other existing loans. Ideal for larger franchises such as restaurants, healthcare franchises, gyms, and medium to larger scaled bakeries where you need to have a stand-alone building built or require a number of expensive equipment.  
  • CTBC SME Revolving Credit Line Loan (Loan Amount: PHP 500,000 to PHP 70,000,000) – Ideal if you have one or more large-scale franchises that need access to bigger amounts of working capital on demand, such as groceries and convenience stores. 

2. More Than PHP 500,000 Minimum Loan Amount

  • BDO SME Term Loan (Loan Amount: PHP 1,000,000 to PHP 20,000,000) – Best for SMEs that are looking for aggressive expansion or want to get more than one franchise. This is also a good option if you need to purchase expensive equipment for gyms, healthcare franchises, and restaurants.
  • BDO SME Ready Check (Loan Amount: PHP 1,000,000 to PHP 20,000,000) – Excellent option if you need quick access to larger amounts of cash to augment your working capital, such as the purchase of large amounts of inventory for bigger groceries and multiple convenience stores and meat shops.  
  • PSBank SME Term Loan With Prime Rebate (Loan Amount: Minimum of PHP 500,000 or PHP 2,000,000 depending on collateral) – The best option for loan discount and rebate opportunities. Their Prime Rebate allows you to get a loan interest discount whenever you make advance or excess payments on your monthly due, making your money work for you.

For more details on these business loans and added options, check out this article.

 

How To Get a Loan for Your Franchise Business: 5 Steps

The steps to getting a franchise loan are the same as when getting any other business loan.  

1. Find Out Exactly What You Need

Do some self-analysis and only borrow what you need. You should answer questions like “What will I use this loan for?” and “How urgent is the need for funds?”. That way, you can carefully consider what loan is best for you. 

2. Choose a Lender and a Business Loan That Will Fit Your Needs

In general, term loans are best when you need a lot of money upfront. Meanwhile, credit line loans are useful for funding repeated business expenses such as inventory or wages. 

The best option would often depend on your personal situation. Don’t rush and do as much research as you need to find your best loan options. Learn about the different types of business loans here

3. Prepare the Necessary Requirements

Different banks and private lenders may have different eligibility and documentary requirements. Talk to your lender directly to ensure that you have everything prepared.  

4. Apply for Your Business Loan

You can usually find details of the application process on the respective websites of the lenders. Note that they may contain outdated information. So, if you have any concerns, get in touch with your local bank or private lender, as they will be the most qualified to assist you. 

5. Your Business Loan Has Been Approved. What’s Next?

Ask and follow up with your bank or private lender contact to know exactly when you will get your funds. Expect to receive your funding as fast as a few days after the approval of your loan. Ensure that any money that you borrow is invested only into your business and not to any personal expense.

Related: How To Get a Government Loan for Small Businesses in the Philippines

 

Tips & Warnings

1. Always check with SEC if a P2P lending business is legitimate

If you’re dealing with a peer-to-peer lender (P2P), make sure they have a secondary license from the Securities and Exchange Commission (SEC).  

Please note that the entity with the secondary license must be the lender itself and not just the middleman which introduces you to the lender or finds the lender for you. The SEC has a partial list of authorized lenders on its website1, but it is best to make direct inquiries with SEC regarding the registration and legitimacy of your potential lender.

2. Stay ahead of your debt by doing the following:

  • The saying “prevention is better than cure” also applies to debt management. Keep track of all your debts and set aside a specific budget for the repayment of your loan.
  • Be proactive in keeping up with your repayment schedule and communicate with your lender. Some business loans are eligible for discounts if you pay your debts ahead of time. On the other hand, some business loans will have a penalty for pre-payment. 
  • Lastly, one of the best ways to manage debt is to ensure that any money you borrow is invested into income-generating activities that will help repay your debt and grow your franchise. 

3. Maintain and improve your creditworthiness

Creditworthiness is a term that refers to your suitability to receive a loan in the eyes of lenders. It is based on a few factors, such as your credit and repayment history. Your creditworthiness can directly affect your eligibility to get a loan, as well as the loan amount and interest rates you can secure from a lender.  

You can improve your creditworthiness by managing your finances properly and paying back your debt on time based on your repayment schedule. 

 

Frequently Asked Questions

1. How much debt is okay for a franchise or small business?

There are two commonly accepted methods to determine how much debt is acceptable: 

  • Maintaining a Debt Ratio of 0.4 or Lower. One method is computing your debt ratio, which you can get by dividing your total debt by your total assets. The formula is simply: Total debt ÷ Total assets. As a rule of thumb, debt ratios of 0.4 or lower are considered preferable2 from a risk standpoint. On the other hand, debt ratios of 0.6 or higher make borrowing money more difficult.
  • Maintaining a Debt-to-Income Ratio of 35% or Lower. Another method is computing your debt-to-income ratio (DTI), which is the sum of your monthly debt payments divided by monthly gross income. The formula is the Sum of monthly debt payments ÷ Monthly gross income. Some lenders consider this as part of your eligibility requirements for a loan. For example, Security Bank requires you to have no outstanding debt that exceeds 40% of your business’s monthly income to be eligible for their franchise loan. Generally speaking, a DTI ratio of 35% or less is favorable3

2. I have a bad/non-existing credit history. How can I get a loan for a franchise?

If you have a bad or non-existent credit history, a good option would be to get a secured loan. The collateral that you will provide will serve as a security for the lender and will be used to pay back your loan in case you are unable to do so. From there, you can work to improve your creditworthiness so that you are more eligible to get a loan at more favorable rates in the future. 

3. What happens if I don’t pay back my loan?

In most cases, the consequences for failing to repay a company loan are specified in the loan agreement. Failure to pay may result in loan termination, acceleration of the full amount demandable (meaning the entire loan obligation becomes due and demandable immediately), application of penalties on top of the principal and interest already due, and foreclosure of the collateral. 

4. My loan application was rejected. What should I do?

There is probably a reason why your loan application was rejected. Contact your lender and ask for an explanation as to why you got rejected. This will help you identify the problem so that you can regroup before you re-apply for your loan. If you were still not approved for a loan, you could apply for a loan with easier terms or go to a different lender. 

 

References

  1. List of Lending Companies. (2021). Retrieved 1 February 2022, from https://www.sec.gov.ph/lending-companies-and-financing-companies-2/list-of-lending-companies-2/
  2. Ross, S. (2022). What Is a Good Debt Ratio?. Retrieved 1 February 2022, from https://www.investopedia.com/ask/answers/021215/what-good-debt-ratio-and-what-bad-debt-ratio.asp#:~:text=In%20general%2C%20many%20investors%20look,more%20difficult%20to%20borrow%20money
  3. What is a Good Debt-to-Income Ratio?. Retrieved 1 February 2022, from https://www.wellsfargo.com/goals-credit/smarter-credit/credit-101/debt-to-income-ratio/understanding-dti/

Rod Michael Perez

Rod Michael Perez is a freelance writer with over 7 years of experience in writing long-form articles, ad copy, and SEO content for local and foreign clients. He is also an aspiring startup founder and believes that the Philippines could be the next hub for startup culture. He takes care of his dog, a poodle-Shih Tzu hybrid, in his spare time.

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