Franchise financing

What is franchise financing?

It is usually several products stacked to match the project budget in your franchise disclosure document. An SBA 7(a) loan covers the franchise fee, buildout and working capital. Equipment financing or a lease covers kitchens, fitness equipment or vehicles, often arranged by the franchisor's preferred vendors. Larger systems have in house or partner lending programs with set terms for approved franchisees.

Buying an existing unit from another franchisee is a business acquisition loan underwritten on that unit's returns, which is usually easier than financing a new build with no history.

Who qualifies for franchise financing?

Lenders underwrite you and the brand. You typically need owner credit of 680 or higher, 10% to 30% of the project in cash, enough liquidity left after closing to cover six months of personal expenses, and either industry or management experience. The brand must be eligible under SBA rules, and lenders prefer systems with a track record of units surviving past year three.

• Declined most often: a first unit from a brand with few open locations, projects where the buildout estimate is thin, owners whose cash is borrowed, and anyone with unpaid taxes or a recent bankruptcy.
• Multi unit operators with profitable existing stores are the easiest approvals, often on conventional terms.

What does franchise financing really cost?

A typical example: a $400,000 project made up of a $40,000 franchise fee, $250,000 buildout, $80,000 equipment and $30,000 working capital. You put in 20%, $80,000, and borrow $320,000 as an SBA 7(a) loan over ten years at about 10%. The payment is roughly $4,230 a month, and interest over the term is about $187,000.

Add the SBA guarantee fee of 0% to 3.75% of the guaranteed portion, lender packaging fees of $2,000 to $5,000, and closing costs. Many lenders also want royalties, usually 4% to 8% of sales, included in the cash flow projection, and they will test whether the unit covers the payment after those royalties. The SBA loan calculator shows the full picture.

How do you qualify, and what documents do you need?

Expect three years of personal tax returns, a personal financial statement, a resume, proof of your cash injection, the signed or draft franchise agreement, the franchise disclosure document, a project budget matching the disclosure document's estimate, and a business plan with projections. Resales add the unit's three years of returns. Lenders check the brand against SBA eligibility rules themselves.

Start with our document checklist. The item that slows most files is the projection: lenders want it based on the disclosure document's own unit economics, with royalties and marketing fees included, not on a best case the franchisor's sales team described.

How long does franchise financing take?

Typically 30 to 90 days from a complete application to funding, with the SBA portion driving the timeline. Lenders that already have the brand on file move faster, which is one reason franchisors keep lists of preferred lenders. Equipment financing closes in days and can be arranged in parallel.

Build the financing timeline into your franchise agreement. Most agreements require you to open within 6 to 12 months of signing, and a slow loan can put you in breach. See how long business loans take, and talk to a lender before you sign the agreement rather than after.

When should you choose something else?

Choose a business acquisition loan on an existing unit if one is for sale in your territory; its history makes the loan easier and cheaper than a new build. Choose a SBA 504 loan if the project includes buying the building, so the real estate gets a 25 year fixed rate.

Choose a different brand if lenders will not touch the one you picked. A system that most SBA lenders decline is telling you something about its unit economics, and no financing structure fixes that.

How do you apply for franchise financing?

Apply once on this site with your disclosure document and project budget, and your application reaches SBA lenders and equipment lenders that already fund your brand or similar systems. It is free for your business, and we are paid the same whichever lender you choose. You can also ask your AI assistant to apply through our MCP server; it reads the disclosure document and your statements, fills the application and submits it.