Securing Financing for a Green Franchise Opportunity in California

Franchises let you combine independence and association with a larger enterprise. It is a formula that many business people find appealing, especially if that franchise is green. Franchising and green business can be a winning combination for aggregating a loyal consumer base.

Franchising also offers unique financing conditions. Many franchisors provide financing and other forms of support to their franchisees, but outside financing may be necessary as well. If you are a business owner looking to open a green franchise or expand your existing franchise, you should be aware of the opportunities the Small Business Administration (SBA) 504 loan program offers, including its Green Energy Program.

Finding Your Green Franchise

There are a tremendous number of franchises operating in the United States. The long list of green franchises can be divided into several categories. Some businesses provide an environmentally friendly option for a standard service—organic restaurants and nontoxic cleaning, for example. Other franchise businesses encourage green practices, such as repair services, recycling or resale businesses and fair-trade retailers. Yet others perpetuate environmentalism through consultation, provision of sustainable energy or sales of sustainable energy production equipment. Many green franchises are quite affordable for small business people looking to buy into them.

Joining the Green Community

Being a green business places you in a special category in your market. Many consumers seek out green businesses when they need a product or service, and green businesses band together for mutual support and promotion. The California Green Business Network is a good example of a green business alliance. It provides certification to its members, thus filtering out greenwashing, and offers referrals that help its member businesses save money and raise their environmental standards even higher. It also produces a directory listing over 3,000 businesses to make it easier for consumers to find you.

California leads the nation in environmental protection, and this is reflected in its business climate. Many California cities and counties have programs and services designed to encourage green business. It is worth browsing their webpages, even if your business is located in another area of the state, as many of these pages, such as Santa Barbara County’s, have valuable information and reference material that can be applied anywhere. In addition, the state and local utilities have many energy conservation programs that you may want to participate in.

Financing Your Green Franchise

Every franchisor has its own support package, which might include training, consulting, advertising and other benefits. Franchisors typically charge a franchise fee and require an initial investment from you that may vary in amount. Many franchisors offer financing to new franchisees, either themselves or through a lending partner, but franchisees also often seek financing on their own.

Your franchisor’s reputation, as reflected in its Better Business Bureau rating, online reviews and other public records, will affect you as a franchisee, as will the franchisor’s creditworthiness. Banks will take those things into consideration along with your own credit history when you apply for a loan to open a franchise.

Using a 504 Loan to Finance a Green Franchise

One option is to use a 504 loan to finance your franchise. The 504 loan is issued in a partnership between a conventional lender (a bank or credit union) and a Certified Development Company (CDC) like TMC Financing that administers the SBA portion of the loan. A 504 loan has three parts:

  • The first is the loan from your conventional lender for at least 50% of the project total. You and that lender determine the amount and conditions of that loan, which becomes your first mortgage.
  • Your CDC facilitates a separate SBA loan of 40% of the total, up to $5 million, at a fixed, below-market rate. You can receive up to $5.5 million for manufacturing projects or projects that participate in the SBA’s Green Energy Program. This is your second mortgage.
  • Then you, the borrower, contribute 10% to the loan as down payment. Certain types of facilities are classified as single-purpose properties by the SBA and require a 15% down payment.

Because the conventional lender receives first lien position, the loan is a low risk for it, which makes you a more attractive borrower. A 504 loan can be used to:

  • purchase land or buildings
  • construct, upgrade or renovate buildings
  • purchase equipment with a service life of ten years or more
  • refinance conventional debt

The SBA is concerned that franchisors meet Federal Trade Commission criteria and that they do not exert excessive control over their franchisees. It verifies these facts and places franchises in a permanent Franchise Directory to facilitate the loan application process in the future. If your franchisor is not already included in the directory, it can contact the SBA become listed or your CDC can initiate the process.

In many cases, you may be able to participate in the SBA Green Energy Program as a franchisee. The program allows you to receive additional project funding (to a $5.5 million maximum) and exceed the regular project limit to receive up to a total of $16.5 million in 504 loan funding.

There are three ways to qualify for the Green Energy Program:

  • Buy or construct a building that consumes 10% less energy than your current location
  • Make upgrades to the building you own to consume 10% less energy, or buy the building you now lease and do so
  • Buy or construct a building that produces 10% of the energy it consumes or that produces fuel to reduce fossil fuel consumption, or buy equipment to do so at your current location

The 504 loan is an attractive and accessible way to reduce the cost of credit, which is an important step in ensuring your business is a successful member of the green franchise community.

You can find out more about using a 504 loan to finance your green franchising opportunity from one of TMC Financing’s 504 loan experts. TMC is an SBA Premier Certified Lender and a high-volume loan provider. With over 35 years of experience, TMC can help you find the financing that is best for you and guide you through the 504 loan process. Contact TMC Financing today.


Barbara Morrison, a local small business advocate and civic leader, founded her first company TMC Financing in 1981. TMC is a Certified Development Company that provides commercial real estate financing to small business owners via the SBA 504 Loan Program. TMC consistently ranks among the top certified development companies nationwide, and has funded projects worth more than $9 billion across California and Nevada. Nearly 5,000 small businesses have benefitted from this financing, resulting in the creation of an estimated 50,000 jobs. TMC is also the No.1 SBA 504 hotel lender in the United States. Barbara is also the founder of Working Solutions, a Bay Area microlender whose mission is to provide micro entrepreneurs, particularly low-income individuals, women and minorities, with the access to capital and resources they need to start a successful business.
Barbara Morrison