Are merchant cash advances a good option for franchise working capital?

A Merchant Cash Advance (MCA) is a financing option where you get a lump sum in exchange for a percentage of your daily credit card or sales receipts until a fixed amount is repaid. They are very fast and easy to get (even with lower credit), and many restaurants and retail franchises have used them. However, they are one of the most expensive forms of capital – the equivalent APR can be extremely high. They also take a cut of sales daily, which can be painful for cash flow. MCAs might be a last resort if you can’t qualify for other loans and you have urgent needs. We usually recommend exploring alternatives (like short-term loans or lines of credit) before resorting to an MCA. If you do use an MCA, have a clear plan to get out of it and try not to re-borrow repeatedly.

My franchise is brand new – can I still get a working capital loan?

It’s tougher, but not impossible. Traditional working capital lenders usually want some operating history (at least a few months of revenue). If you’re a brand new franchise and need working capital, you might lean towards an SBA loan or personal financing (like a personal loan or borrowing against home equity) to cover initial working capital. Some franchisors also offer financing help or deferred payment on certain fees to ease the burden. Once you have, say, 6 months of sales under your belt, you’ll find more lenders willing to offer working capital loans. Also, if you have strong personal credit, you could get a business credit card or a personal loan to inject working capital in the very early stages, then possibly refinance that later with a business loan once the franchise is up and running.

What’s the difference between a working capital loan and a business line of credit?

A business line of credit is a revolving account that you can draw from as needed up to a limit, repay, and draw again. It’s very flexible and you only pay interest on the amount you use. A working capital loan (term loan) is a lump sum you borrow once and repay over a fixed schedule. Lines of credit are great for an ongoing cushion or repeated cash needs; loans are better for one-time needs or specific events. For example, if you want a safety net for unpredictable expenses, a line of credit is handy. If you have a planned expense (like a one-time bulk inventory purchase), a short-term loan might do the job. Many franchise owners set up a line of credit for general working capital and only resort to term loans if the line is insufficient or if they need extra beyond the credit line.

Do I need collateral to obtain a working capital loan?

Generally, no specific collateral. Working capital loans are usually unsecured, meaning you don’t have to pledge a particular asset like property or equipment. The lender might file a UCC lien on your business assets (a blanket lien) as a form of security, but that’s not quite the same as requiring hard collateral up front. The most important “collateral” in a sense is your franchise’s cash flow – lenders give money based on your ability to generate revenue. Of course, if you do have assets, you might get better terms by offering them, but it’s often not mandatory for these types of loans.

How quickly can I get a working capital loan for my franchise?

Many working capital lenders pride themselves on speed. You can often complete an online application in minutes and get a decision the same day or within 24 hours. Funding can occur in a day or two after approval, especially for loans under a certain threshold (like $100k). At Liberty Franchise Lending, we’ve helped franchisees secure short-term financing in under a week from initial request to funds in the bank. Banks might take a bit longer (maybe a couple of weeks for a line of credit), but alternative fintech lenders move very fast to provide cash when you need it.

Can I finance used equipment for my franchise?

Often, yes. Many lenders will finance used equipment, though the equipment usually needs to be reasonably new (for example, less than 5–7 years old) and coming from a reputable vendor or seller. The lender may finance a smaller percentage of the cost for used items to account for lower value. The interest rate on used equipment financing might be slightly higher, and they may require an appraisal or inspection. But if you’re buying good quality used franchise equipment at a lower price, financing it can be a smart way to save money. Just check with lenders on any additional conditions for used assets.

What happens if the equipment I financed breaks or needs replacement before the loan is paid off?

If the equipment has issues, it’s still your responsibility to continue paying the loan. Warranty or insurance can cover repair/replacement costs depending on the situation. If the item is under warranty, the manufacturer will fix or replace it, but the loan remains in effect regardless. For equipment that’s mission-critical, it’s wise to have insurance or a service plan. In a worst-case scenario, if equipment becomes unusable, you might talk to the lender – but they typically still expect repayment, since the loan was for that purchase. This is why financing should ideally be shorter or equal to the useful life. Some franchise owners proactively replace equipment near end-of-life and may even finance the new replacement while still paying off the old one if needed, but that requires careful cash flow management.

How quickly can I get equipment financing in place?

Equipment financing is relatively quick. If you have your quotes and information ready, approvals can sometimes happen in a matter of days. We’ve seen franchise clients get an approval in 48–72 hours for simpler deals. Funding can follow shortly after, once documentation is signed and any down payment made. In general, expect anywhere from a few days up to 2–3 weeks to have the funds or vendor payment in place. This is much faster than something like an SBA loan. Many lenders offer expedited programs for financing under certain amounts (like “application-only” approvals for loans up to $100K or more, which speeds things up).

Is it better to lease equipment or take an equipment loan?

It depends on your situation. With a loan, you own the equipment (once the loan is paid) and you can usually sell it or continue using it beyond the loan term. Loans make sense if the equipment has a long life and you want to build equity in it. Leases are like renting – they might have lower monthly payments and often allow easier upgrades to new models. A lease might be smart if the equipment could become obsolete quickly or if you want to preserve capital. However, leases can have higher effective interest rates and you don’t build ownership (unless it’s a lease-to-own structure). Many franchisees use loans for core long-lasting equipment, and leases for ancillary or short-life tech. Evaluating the total cost of each option is key.

Can new franchisees with no business track record get equipment financing?

Yes, it’s possible. Many equipment financing companies will work with startups, especially if it’s a franchised business with a strong brand. They will rely more heavily on your personal credit and the value of the equipment. You may need to sign a personal guarantee and, in some cases, provide a down payment if you’re brand new. Working with a lender that has experience financing new franchise locations (for example, through Liberty Franchise Lending’s network) can improve your chances.

FAQs Archive - Page 2 of 4 - Liberty Franchise Lending

Are merchant cash advances a good option for franchise working capital?
Categories: Capital Loans▪
My franchise is brand new – can I still get a working capital loan?
Categories: Capital Loans▪
What’s the difference between a working capital loan and a business line of credit?
Categories: Capital Loans▪
Do I need collateral to obtain a working capital loan?
Categories: Capital Loans▪
How quickly can I get a working capital loan for my franchise?
Categories: Capital Loans▪
Can I finance used equipment for my franchise?
Categories: Equipment Financing▪
What happens if the equipment I financed breaks or needs replacement before the loan is paid off?
Categories: Equipment Financing▪
How quickly can I get equipment financing in place?
Categories: Equipment Financing▪
Is it better to lease equipment or take an equipment loan?
Categories: Equipment Financing▪
Can new franchisees with no business track record get equipment financing?
Categories: Equipment Financing▪

Franchise Lending Resources

Are merchant cash advances a good option for franchise working capital?

My franchise is brand new – can I still get a working capital loan?

What’s the difference between a working capital loan and a business line of credit?

Do I need collateral to obtain a working capital loan?

How quickly can I get a working capital loan for my franchise?

Can I finance used equipment for my franchise?

What happens if the equipment I financed breaks or needs replacement before the loan is paid off?

How quickly can I get equipment financing in place?

Is it better to lease equipment or take an equipment loan?

Can new franchisees with no business track record get equipment financing?

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