A preferred lender is a financial institution or financing partner that has been vetted and approved by a franchisor to offer funding solutions to prospective franchisees. These lenders are familiar with the franchise system and can often expedite the loan process. In franchising, a preferred lender may offer competitive terms based on the franchise’s business model and performance history.
In the franchise industry, a preferred lender is typically a bank, SBA lender, or alternative finance company that maintains an established relationship with a franchisor. These lenders have reviewed the franchise brand’s financials, business model, and success rates, which gives them confidence to fund qualified franchisees more efficiently. As a result, preferred lenders are more likely to approve loans for new franchisees and may offer streamlined application processes, quicker approvals, and favorable terms.
Franchisors often list their preferred lenders in franchise sales materials or on their websites, and may actively introduce franchise candidates to these lenders during the discovery or onboarding process. Working with a preferred lender does not guarantee loan approval, but it can significantly increase the chances of financing success, especially for first-time franchisees. Some preferred lenders also understand the typical startup costs and working capital needs associated with a specific franchise, making it easier to structure appropriate funding.
Additional Definition: A lender that specializes in franchise financing and has a pre-existing relationship with a target franchisor.
Learn more about franchising in The Educated Franchise - 3rd Edition
The concept of a preferred lender emerged as franchising became more established in the 1980s and 1990s, when certain banks began specializing in franchise funding. Over time, as data and underwriting practices improved, lenders began partnering more formally with franchisors to reduce risk and increase loan volume. The SBA (Small Business Administration) also played a role, encouraging lenders to work with franchisees through guaranteed loan programs, especially in established and successful brands.
Today, preferred lenders are a common part of the franchise development ecosystem. Many successful franchise brands highlight their preferred lender partnerships as part of their recruitment and onboarding strategy, offering financing education and introductions early in the discovery process.
A preferred lender plays a valuable role in franchise development by offering franchisees a knowledgeable and often faster path to securing funding. While not mandatory, working with a preferred lender can reduce friction in the financing process and improve the likelihood of loan approval by leveraging the lender’s familiarity with the franchise system.
