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What is the Cost to Open a Subway Franchise?

subway franchise sign

What is the Cost to Open a Subway Franchise?

Alternative Small Business Funding: Subway Loans

Every year, many Americans are surprised to learn that Subway is a franchise. What does this mean? Well, you could buy into the franchise and open your own outlet in a location. However, this process comes with many questions (and we’re going to attempt to answer some of the biggest today!). In this guide, you’ll learn about the average cost to open a Subway franchise, what Subway offers to all franchisees, and some of your financing options!

The Cost of Opening a Subway Franchise

It makes sense to start with the cost of opening a Subway franchise because this is one of the biggest clouds that hangs over prospective business owners. Is the idea feasible? Ultimately, the amount you pay will depend on your location and whether you choose a traditional or a non-traditional franchise.

Traditional Franchise - According to Subway, a traditional franchise is where the business owner only has the purpose of running a Subway outlet. You’ll rent a location, open the Subway franchise, use a Subway loan or a form of alternative funding for working capital, and focus solely on Subway.

Non-Traditional Franchise - On the other hand, a non-traditional franchise is where the Subway outlet is housed within another business. For example, you might run a hotel, grocery store, hospital, school, university, department store, nursing home, or a similar business. If this is the case, you might opt for a non-traditional franchise and run a Subway franchise within this other business.

Other factors that affect how much you’ll pay to open your franchise include:

  • Location (cost of real estate)
  • Restaurant size
  • Potential renovations
  • Ability to generate revenue

The good news is that Subway is one of the most affordable franchise agreements around at just $15,000. The news that some will consider bad is that this is just the start of your budgeting. Other costs such as insurance, signage, staffing, inventory, training, advertising, and security can lead new franchise owners to spend between $100,000 and $350,000.

What’s a franchise fee? Essentially, this is the payment that you make to Subway to benefit from the brand name and operate under this name. After paying this fee, you essentially have a license to use the trademarks and operating systems of the franchisor. Considering that McDonald’s charges $45,000, we think that the franchise fee from Subway is more than respectable.

If you’re to open a Subway franchise, you need to keep this price range in mind once you consider marketing and all other costs. While some can get away with spending a little over $100,000, others end up needing $350,000. Without proper financial planning, you could be in for a nasty surprise. In the grand scheme of things, Subway is much more affordable than other franchise programs. Returning to McDonald’s, people often spend over $2 million just trying to get one outlet started.

Benefits of a Subway Franchise

Why should you consider a Subway franchise? As we’ve seen, one of the biggest advantages compared to other franchises is that it’s affordable. Compared to McDonald’s, you could pay as little as $100,000 rather than $2 million.

Aside from the financial aspect, Subway franchise owners also benefit from an advanced training program and access to online courses for all employees. Over the years, Subway has optimized the franchise system, so you should never feel alone. There’s also a Business Development Agent system that provides support to all franchises - this local support will help both in the short term and long term.

Next, the fact that you’re joining the Subway family means that you get support from the national advertising program and local initiatives. In a world where people are seeking healthy and affordable food, Subway is also a stronger option compared to many other brands. You can focus on healthy, made-to-order options and attract a strong customer base.

Why choose a franchise in the first place? Naturally, you benefit from the brand name. Regardless of how much experience you have in the field, the fact that you’re opening a Subway shop means that you’ll immediately attract customers. When going with your own brand, you’ll need to work harder to get customers through the door and build a reputation and credibility.

Common Questions - Subway Franchises

Before we talk about opening a Subway franchise with a poor credit score, utilizing alternative funding, and accessing working capital, we first want to address some common questions regarding Subway franchises.

What are the requirements to get started?

Currently, Subway is accepting franchise requests in every state as well as Canada. So long as you have liquid assets of $40,000, Subway will consider your request.

What are the advertising and royalty fees with Subway?

When running a Subway franchise, you’ll need to pay 12.5% of your sales (gross minus tax) to the company. While 8% covers royalties, the other 4.5% is for advertising.

How does the Subway Development Agent component work?

As part of its franchise system, Subway offers Development Agents that work locally and visit sites. If you have any questions or need help, you’ll contact the DA. There’s a misconception that the DA only helps during the application process, but they’re available as you continue to operate in the market.

Do I get training when opening a Subway franchise?

Subway is a leading franchisor when it comes to training and all business owners can visit training centers as well as online courses and programs. Interestingly, this training extends to all staff members rather than just franchise owners.

Are there any other non-financial requirements for Subway franchise owners?

Yes, Subway asks all applicants to complete a two-part test with the local development office. Around an hour in length, you’ll need to answer basic Math and English questions.

What is the logistics behind the Subway franchise?

In terms of building the outlet, all franchisees receive blueprints from the Subway special design team. Not only this, but the company also recommends contractors based on what other franchisees have used nearby. However, the franchise owner is wholly responsible for hiring a contractor and overseeing the process.

In terms of the lease, you won’t own this personally. Instead, Subway owns all leases for its locations and then subleases to franchisees.

Once you’re up and running, Subway will put you in contact with its approved suppliers. Subway asks that you use the approved food distributors to maintain high quality with all products and services. The company also has an IPC (Independent Purchasing Cooperative) that negotiates price savings while also guaranteeing high quality.

Subway Loans and Other Financing Options

With this, we reach one of the most important sections for many aspiring Subway franchise owners. Whether you need to fund the cost to open a Subway franchise or just working capital, we’re going to address some of the most reliable funding methods today for Subway loans. What Subway loans are available? What alternative funding methods for Subway loans could help your business? Let’s look!

1. Term Loans (Bank)

Traditionally, the most common financing method for a Subway franchise has been to use a bank term loan. With favorable rates and terms, bank loans allow people to borrow the amount they need for a Subway franchise and pay it back over up to 25 years. Despite the favorable terms and rates, these conventional loans require a long application, strong credit score, and long waiting periods. This being said, Subway also has financial requirements for new franchise owners so those who meet the requirements are likely to also qualify for a bank loan.

If you have a poor credit score, we recommend continuing to other forms of Subway loan finance because a bank loan isn’t the most readily available option.

2. Unsecured Business Line of Credit

As we enter the realm of alternative financing for Subway loans, we find a solution that works like a personal credit card. As a Subway owner, you’ll have access to a pot of money in a bank account. If you don’t use it, you don’t need to pay anything. As soon as you withdraw from the account, you’ll then pay interest on the borrowed amount. Depending on the contract, you’ll pay between 5% and 15% interest and will have a maximum of up to $500,000.

A huge advantage of this method for a Subway loan over a traditional bank loan is that the South Florida Funding Group can help you to get approval within 48 hours and Subway loan funding within a matter of days. When in this niche, you’ll notice that both unsecured and secured versions exist. While the former is obtained through credit strength, the other uses an asset as collateral.

3. SBA Loan

Like a bank loan, this is another popular option for new Subway franchise owners because it allows them access to important cash. How does it work? The Small Business Administration covers a high percentage of losses which makes you more attractive to prospective lenders. With the 7(a) loan, you can potentially borrow millions.

Though SBA loans make business owners a more attractive proposition, they still come with many of the same problems as traditional bank loans. For example, you’ll need to wait up to four weeks for approval and then four months for Subway loan funding. If you’re happy to wait, SBA loans are an attractive option (so long as you meet the requirements!).

4. Merchant Cash Advance

If working capital is what you need for your Subway loan, a good option for your Subway franchise is a Merchant Cash Advance; in this niche, you might see it referred to as a franchise cash advance. Either way, the goal is the same - to borrow an amount of your future revenue in advance. You borrow the money from a lender, and they take payments back from a percentage of your future revenue.

When you choose this option with the South Florida Funding Group, you can borrow up to $500,000 and approval comes within 48 hours. What’s more, most people access the Subway loan funding within just five days. Since this is a working capital solution, you’ll need a few months of operation within the niche before applying. Interest rates vary alongside repayment terms, so make sure you understand the terms of the agreement before signing on the dotted line.

5. Equipment Leasing and Financing

Next, all Subway franchisees soon realize that lots of equipment and machines are required to run a successful outlet. As an example, you’ll need some of the following:

  • Drinks cabinet/fridge
  • Fridges
  • Freezers
  • Service station
  • Coffee machine
  • Microwave
  • Prep counter
  • Convection ovens
  • Toasters

If you’re worried about funding for equipment, the South Florida Funding Group can assist with two options: leasing and financing. By leasing, you pay a monthly amount and essentially borrow the equipment from the vendor. Unfortunately, you never own the equipment, and the vendor will take the equipment back if you fail to adhere to the agreement.

On the other hand, equipment financing will see you become the owner of all equipment. You’ll still pay a monthly fee and have the equipment taken away if you fail to adhere to the agreement. However, you’re the owner of the equipment, and this is the difference between the two agreements.

As we’ve seen with other forms of alternative funding, decisions are quick (often within 24 hours). This is a great way to get the equipment you need and pay over a period rather than finding the money at the outset (at an already expensive time).

Summary

What is the cost to open a Subway franchise? On average, people spend between $100,000 and $350,000. If you have a poor credit score, you’ll want to explore all your options from Subway loans to alternative funding. With the right funding, you’ll successfully open your business while also enjoying the working capital required to make the venture a success.

If you’re considering a Subway franchise this year, remember to create a business plan, utilize all the excellent Subway resources, and potentially work with a mentor to give your franchise the best chance of success. Good luck!

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