| Overview: Starting a franchise in India requires astute financial planning. From MUDRA loans to NBFC products, discover the best business loan options for franchise owners in India. Compare rates, tenure, and eligibility to select the optimal franchise financing options for your venture. |
Understanding the Franchise Funding Landscape in India
The franchise industry in India has experienced exponential growth. There are now over 4,500 franchise brands operating across various sectors, including food, retail, education, and services. However, even low-investment franchises under ₹10 lakh typically require additional capital for setup, inventory, and working capital needs.
Most franchise owners require external funding to bridge the gap between initial investment and actual setup costs. A franchise requiring an investment of ₹15 lakh often requires an additional ₹20–25 lakh when all expenses are factored in. Understanding the right business loan for franchise owners in India becomes crucial for sustainable growth.
Government-Backed Franchise Financing Options
There are currently many government-backed franchise financing options.
MUDRA Loans: The Foundation for Small Franchises
The Pradhan Mantri MUDRA Yojana offers excellent loans for franchise owners, especially those starting smaller ventures. The scheme provides three categories:
- Shishu: Up to ₹50,000
- Kishore: ₹50,000 to ₹5 lakh
- Tarun: ₹5 lakh to ₹10 lakh
These loans are collateral-free and perfect for franchise financing options in the micro-segment.
SIDBI and State Government Schemes
Small Industries Development Bank of India (SIDBI) provides refinancing support to banks and NBFCs for SME lending. Some states offer additional subsidies on interest rates for specific franchise sectors, such as manufacturing or food processing.
NBFC Business Loans for Franchise Ventures
Airtel Finance also provide business loans for franchise ventures.
Specialised Franchise Finance Products
NBFCs understand franchise business models better than traditional banks. They offer tailored products considering franchise fees, royalty structures, and brand-mandated setup costs.
Key features of NBFC franchise loans:
- Loan amounts: ₹50,000 to ₹75 lakh
- Tenure: 12 to 96 months
- Collateral-free options available
- CIBIL score requirement: 685+
- Business vintage: Minimum 1–3 years
Flexi Loan Products
Many NBFCs offer flexible repayment structures ideal for franchise financing options:
- Interest-only EMI phase: Pay only interest for the initial 6–12 months while the franchise establishes a customer base.
- Line of credit: Draw funds as needed rather than taking a lump sum, and pay interest only on the utilised amount.
| Loan type | Amount range | Tenure | Key benefit |
| Term loan | ₹2–75 lakh | 1–8 years | Fixed EMI, predictable cash flow |
| Flexi term | ₹2–50 lakh | 1–5 years | Draw as needed, interest on usage |
| Working capital | ₹1–25 lakh | 1–3 years | Seasonal business support |
Traditional Bank Loans for Established Franchises
Franchises can also opt for traditional bank loans.
Secured Term Loans
Banks offer competitive rates to franchise owners who provide collateral. These are best suited for larger franchise investments exceeding ₹25 lakh.
Typical features:
- Loan-to-value ratio: Up to 80% of property value
- Tenure: 3–7 years
- Processing time: 15–30 days
Cash Credit and Overdraft Facilities
For ongoing working capital needs, banks provide:
- Cash credit: Against inventory and receivables
- Overdraft: Against fixed deposits or property
- Interest charged only on the utilised amount
| Pro Tip: Combine a term loan for setup costs with an overdraft facility for working capital. This optimises your cost of funds while maintaining liquidity. |
Alternative Financing Solutions
Franchise owners can also consider these alternative financing solutions.
Personal Loans for Gap Funding
When traditional business loans face delays, personal loans can bridge funding gaps:
- Loan amount: ₹1–40 lakh
- Tenure: 1–5 years
- No collateral required
- Faster approval process
Personal loans work well for smaller ticket items like POS systems, initial marketing, or interior finishing.
Credit Cards and EMI Cards for Equipment
For franchise equipment and technology needs, EMI cards offer flexibility without impacting working capital.
Choosing the Right Franchise Financing Strategy
As a franchise owner, remember to consider all the different factors before making a decision.
Assessment Framework
| Factor | MUDRA | NBFC | Bank | Personal loan |
| Speed | Medium | Fast | Slow | Very fast |
| Amount | Up to ₹10L | Up to ₹75L | No limit | Up to ₹40L |
| Collateral | No | Optional | Usually yes | No |
| Interest | Low | Medium | Lowest | Highest |
| Documentation | Moderate | Minimal | Extensive | Minimal |
Risk Management Considerations
Debt Service Coverage Ratio (DSCR): Ensure your franchise’s annual cash flow is at least 1.25 times your yearly loan obligations.
Formula: DSCR = Annual Cash Flow/Annual Debt Service
A healthy DSCR of 1.5 or above indicates comfortable repayment capacity.
Working Capital Planning
Franchise businesses often face seasonal variations. Plan for:
- Festival season inventory buildup
- Marketing campaign expenses
- Equipment maintenance and upgrades
- Staff bonus payments
| Mistake to Avoid: Don’t use your entire loan amount for setup. Reserve 15–20% for initial working capital needs and unforeseen expenses. |
Making the Final Decision
The best business loan for a franchise in India depends on your specific situation:
- New entrepreneurs: Start with MUDRA loans for lower amounts, build credit history, then graduate to NBFC products for expansion.
- Experienced business owners: Consider secured bank loans for better rates, supplemented by unsecured facilities for flexibility.
- Technology-focused franchises: Leverage EMI cards for equipment while using traditional loans for core business needs.
In a Nutshell
Your franchise financing journey requires careful planning and the right mix of products. When selecting government schemes, NBFC solutions, or bank products, ensure your debt servicing doesn’t exceed 40% of your monthly cash flow.
Consider exploring multiple loan options simultaneously to compare business loan benefits for franchise owners. Choose the most suitable combination for your specific franchise venture and apply for the business loan online.
FAQs
What is the minimum CIBIL score required for a business loan for a franchise in India?
Most NBFCs require a minimum CIBIL score of 685–700 for franchise financing options. Banks may accept slightly lower scores with additional collateral.
2. Can I get franchise financing options without a business vintage?
New entrepreneurs can access MUDRA loans without business history. However, most NBFC and bank loans for franchise owners require one to three years of business operation.
3. How much working capital should I plan beyond the franchise fee?
Plan for 25–30% additional working capital beyond the franchise fee to cover inventory, deposits, staff salaries, and initial marketing.
4. What are the documents required for a business loan for a franchise in India?
Typical requirements include a PAN, Aadhaar, bank statements, ITR, GST returns, franchise agreement, business plan, and financial projections.
5. Can I combine multiple loans for franchise owners from different lenders?
Yes, you can combine different franchise financing options, such as MUDRA for setup costs and personal loans for working capital. This ensures that your total EMI remains manageable.
