# Business Lines of Credit for Franchise Owners

> How a revolving line of credit works for a franchise unit: draws, Tier 1 qualification, pricing from 1% per month, and when a term structure fits better.

Source: https://mfebusinessloans.com/franchise-funding/line-of-credit/ (Merchant Fund Express, updated 2026-10-21)

## The short answer

A business line of credit gives an established franchise unit a revolving limit it can draw on, repay and draw again. Merchant Fund Express reviews lines of credit under its Tier 1 standards: 3+ years in business, FICO 650+, $25K a month in revenue with 8+ deposits a month, and pricing from 1% per month. If the need is one-time, a term structure is usually the better fit.

## How does a revolving line work for a franchise unit?

A line of credit sets a limit. You draw what you need, you pay cost only on what is outstanding, and as you repay, that room opens again. For a franchise operator this suits the needs that repeat: a large distributor order every quarter, a royalty and advertising-fund schedule that hits on fixed dates, or a seasonal staffing ramp.
Draw part of the limit when a bill lands before sales settle.
Repay as card settlements, membership drafts or receivables come in.
Redraw the next time the same timing gap opens, without a new application for each need.
Leave it unused in a strong month; an idle line is a cushion, not a cost of capital.
Compare the general mechanics in business loan vs line of credit.

## What does Tier 1 qualification require?

Lines of credit and term loans sit in Tier 1, the strictest of the published standards. A franchise unit is read like any other operating business; the brand name does not change the minimums.
Tier 1 standard | Published minimum |
Time in business | 3+ years |
Credit score | FICO 650+ |
Revenue | $300K a year or $25K a month |
Deposit count | 8+ deposits a month |
Average balance | $5K or 10% of monthly revenue |
Negative days | Max 3 a month and 9 in 6 months |
NSFs | Max 6 a month and 24 in 6 months |
Ownership | At least 50% |
Bankruptcy or foreclosure | None in the last 3 years |
Existing positions | At most 2; a line of credit can sit in second position |
Full detail lives on franchise funding requirements. If the unit is under 3 years or the score is below 650, Tier 2 revenue-based funding (6+ months, FICO 600+) may still be reviewed.

## What does a line cost?

Merchant Fund Express prices lines of credit from 1% per month on the outstanding balance. The arithmetic is easy to run yourself. Suppose a hypothetical operator draws $20,000 before a holiday inventory build: at 1% per month the cost is $20,000 x 1% = $200 for a month the draw is outstanding. Repay half after 30 days and the next month costs $10,000 x 1% = $100. Total cost over the two months: $300.
Figures in this example are illustrations of the arithmetic, not an offer, quote or approval. Real terms depend on the file and the funder.
Your actual rate depends on the file. Ask how draws are repaid (fixed schedule or flexible) and whether any fee applies per draw.

## Line of credit, term loan or working capital: which fits?

Feature | Line of credit | Term loan | Working capital |
How funds arrive | Draw as needed up to a limit | One lump sum | One lump sum |
Best use | Repeating timing gaps | One defined project with a long payback | A one-time short-term need |
Cost basis | From 1% per month on what is outstanding | 0% origination; cost set by term and rate | Total repayment set at signing |
Qualification tier | Tier 1 | Tier 1 (first position only) | Tier 1 or Tier 2 by product |
Position rules | Can sit in second position | First position only | Up to 2 current advances in Tier 2 |
Franchise example | Quarterly distributor order | A planned remodel | A payroll gap before settlements clear |

## When does a term structure fit better than a line?

A line is built to be used and repaid in cycles. If you know you need the whole amount at once and will repay it over a longer stretch, a term structure is usually cleaner:
A franchisor-required refresh or a contractor-quoted remodel with a single invoice.
Replacing a large piece of equipment (compare equipment financing).
A one-time catch-up after a closure, where a revolving limit would sit maxed out.
Opening another unit, reviewed on the current units' deposits (see multi-unit funding).
A term loan in Tier 1 carries 0% origination but must be in first position. If you already carry a first-position product, a line may be the only Tier 1 option, because a line can sit in second.

## What should you have ready?

About 3 months of business bank statements (PDFs from the bank) for the entity that owns the unit.
Your ownership percentage (at least 50% for Tier 1).
A list of existing positions with payment and frequency.
A rough sense of how often you would draw and how you would repay.
Merchant Fund Express gives a same-day decision on a complete file; funding often follows the next business day. Start at the application, which takes about 5 minutes and begins with a soft credit pull.

## Keep reading

Franchise funding hub: all franchise guides
Franchise funding requirements: Tier 1 and Tier 2 side by side
Working capital for franchise owners: for one-time cash needs
Business line of credit: the general product page
Loan vs line of credit: the general comparison

## Common questions

### Can a franchise unit under 3 years old get a line of credit?

Not under Tier 1, which needs 3+ years in business. A unit with 6+ months, FICO 600+ and $60K in verifiable revenue can be reviewed for Tier 2 revenue-based funding instead.

### Do royalty debits count against the line?

They are read as normal recurring obligations. The limit and payment are sized after royalty and advertising-fund debits, not before.

### Can I have a line of credit and an existing advance?

Possibly. Tier 1 allows at most 2 existing positions, and a line of credit can sit in second position. A term loan must be first.

### Is the 1% per month the rate everyone gets?

No. Pricing starts from 1% per month; the actual figure depends on the file.

### What credit score do I need?

FICO 650+ for a Tier 1 line. Scores from 500 are considered for other products, and 600+ opens better offers.

Apply with Merchant Fund Express: https://merchantfundexpress.com/current-application.html?utm_source=mfebusinessloans.com&utm_medium=franchise&utm_campaign=franchise-funding&utm_content=line-of-credit