Answer
Can I get a loan to buy a franchise?
Franchises finance more easily than independent startups, because the lender can look at hundreds of comparable units. Here is how it works.
Yes, and franchising is one of the easier ways to finance a new business. Because a lender can look at hundreds of comparable units and the franchisor's Item 19 financial performance representation, an approved franchise with strong unit economics is far more financeable than an original concept.
Why franchises finance better than independent startups
A startup asks a lender to believe a projection. A franchise lets the lender check the projection against real units.
- Item 19 of the Franchise Disclosure Document gives financial performance figures the franchisor is accountable for — the single most useful document in startup lending.
- Comparable unit data means the lender can see failure rates and ramp curves across the system.
- Some lenders run brand-specific programs and will move quickly on brands they know well.
- The SBA maintains a Franchise Directory of brands reviewed for eligibility, which removes a step for listed systems.
What it costs to get in
| Cost | What to expect |
|---|---|
| Franchise fee | $20,000 to $75,000 typical, paid to the franchisor up front |
| Build-out and equipment | Usually the largest line; varies enormously by concept |
| Initial working capital | The franchisor's FDD states a required minimum |
| Your equity injection | 20% to 30% for a new unit; around 10% buying an existing one |
| Ongoing royalties | Typically 4% to 8% of revenue, which the lender builds into coverage |
| Marketing fund | Often another 1% to 3% |
Buying new versus buying an existing unit
| New unit | Existing unit (resale) | |
|---|---|---|
| Injection required | 20% to 30% | Around 10% |
| What the lender underwrites | Projections from Item 19 | That unit's actual history |
| Ramp-up risk | Yours | Already absorbed |
| Price | Franchise fee plus build-out | A multiple of actual earnings |
| Difficulty | Harder | Easier — this is the underrated route |
Buying an existing franchise unit is consistently easier to finance than opening a new one, for the same reason buying any existing business is: the cash flow is real rather than projected. See business acquisition loans.
Diligence that actually matters
- Read the entire FDD, especially Item 19 and the litigation history in Item 3.
- Call at least ten current franchisees you chose yourself, not ones the franchisor selected for you. Ask what they wish they had known.
- Ask about closures and transfers, not just openings. A system opening 50 units a year while closing 40 is telling you something.
- Check territory protection in writing.
- Have a franchise attorney review it. The FDD is not negotiable in most systems, but you should understand exactly what you are signing.
Questions people actually ask
Will the SBA lend on any franchise?
The brand must meet SBA eligibility requirements, and the SBA maintains a directory of reviewed brands. Listing streamlines the process; a brand that is not listed can still be reviewed, which adds time. Confirm your brand's status before you pay a franchise fee.
How much money do I need to open a franchise?
Plan on 20% to 30% of total project cost as your own documented money for a new unit, plus the liquidity the franchisor requires. Buying an existing unit typically needs closer to 10%, which is why resales are the more accessible route.
Are franchise loans easier to get than regular business loans?
Easier than financing an original startup concept, yes, because the lender has comparable data. Not easier than financing an established independent business with three years of profitable returns.