You’ve identified a franchise opportunity, vetted the brand, and are ready to become a business owner. The last major hurdle is securing the capital. Financing a franchise purchase is different from starting a business from scratch; lenders view a proven business model favorably, but the total investment, including franchise fees and working capital, can be substantial.
As of late 2025, the lending environment for strong franchise brands remains robust, but preparation is critical. At Sunbelt Atlanta, we work with entrepreneurs daily to navigate this process. This guide breaks down the most effective ways to finance your franchise, from government-backed loans to using the franchisor’s own programs.
Before you approach a single lender, you must assemble a comprehensive financial package. Lenders are not just investing in a brand; they are investing in your ability to execute that brand’s model successfully. A well-prepared application demonstrates you are a low-risk, high-potential business owner.
Your business plan is the primary narrative you present to lenders. It must be customized for the specific franchise location and market you are targeting. Your plan should heavily reference the franchisor's operational model, marketing support, and supply chain, showing how you will leverage these existing systems. It must also include detailed financial projections—covering at least three to five years—for revenue, expenses, and cash flow, justifying the loan amount you are requesting. The SBA offers excellent resources for building a lender-ready plan.
The Franchise Disclosure Document (FDD) is your most critical source of information. Lenders will expect you to know this document inside and out. Pay special attention to Item 7, which details the "Estimated Initial Investment." This section breaks down every conceivable cost, from the franchise fee and real estate to signage, inventory, and required working capital for the first few months. You should also closely review Item 19, the "Financial Performance Representation," to build realistic sales projections for your business plan.
Lenders will scrutinize your personal financial health to gauge your reliability. You will need a strong personal credit score, as most lenders for small business loans look for a FICO score of 680 or higher. Furthermore, you must have sufficient liquid capital for a "cash injection" or down payment. This typically ranges from 10% to 20% of the total project cost and cannot be borrowed from another source; it is your "skin in the game" that secures the lender's commitment.
Several well-established paths exist for franchise financing. The best option for you will depend on the total investment, your personal finances, and the specific franchise brand. Many entrepreneurs use a combination of these funding options.
The U.S. Small Business Administration (SBA) doesn't lend money directly but guarantees a portion of loans made by approved lenders. The most popular program for franchise financing is the SBA 7(a) loan. Because of the government guarantee, lenders are more willing to offer favorable terms, such as lower down payments (often 10-20%) and longer repayment periods (up to 10 years for working capital and 25 years for real estate). This financing option can be used to cover the franchise fee, equipment, inventory, and working capital, all in one package. Learn more: SBA 7(a) overview
A traditional bank loan is a direct loan from a bank or credit union without an SBA guarantee. To secure this type of business financing, you will typically need a stronger financial profile than for an SBA loan. Banks will look for excellent credit (often 700+), significant industry experience, and substantial collateral. The underwriting process is often faster than an SBA loan but more stringent. This is a complex comparison, similar to weighing private equity vs. traditional lenders in larger acquisitions.
Many established franchise brands offer financing programs directly to their new franchisees. This information will be detailed in Item 10 of the FDD. Franchisor financing can be a convenient way to fund a portion of the purchase, as the "lender" already understands the business model completely. This can streamline the approval process significantly. However, you must always compare the interest rates and terms offered by the franchisor to those from outside lenders to ensure you are getting a competitive deal.
A ROBS arrangement allows you to use your eligible retirement funds (like a 401(k) or IRA) to finance your franchise purchase without paying early withdrawal penalties or taxes. This process is complex: you must create a C-Corporation, which then sponsors a 401(k) plan that purchases stock in your company, funding the business. While this allows you to start your business debt-free, it is a high-risk strategy, as you are placing your personal retirement savings on the line. The IRS has specific guidelines that must be followed precisely.
Often, a single loan won't cover 100% of the costs, or you may need to fill a specific funding gap. In these cases, aspiring business owners turn to more creative and strategic financing methods to complete their capital stack.
When you are buying an existing franchise location from a current owner (a resale), you may be able to negotiate seller financing. In this arrangement, the seller "carries a note" for a portion of the purchase price. This is a powerful tool, as it demonstrates the seller's confidence in the business's continued success. Typically, seller financing might cover 10-30% of the price, which can reduce the amount you need from a primary lender and show them you have the seller's endorsement. This strategy is a key component of seller finance in mergers and acquisitions. For franchise resales, confirm the franchisor’s transfer/approval requirements and any limits on seller notes early to avoid closing surprises.
If you are entering a franchise that requires significant hard assets—such as ovens and freezers for a restaurant, diagnostic tools for an auto-service center, or specialized computers—equipment financing is an excellent option. With this type of loan, the equipment itself serves as the collateral. This frees up your other capital (like an SBA loan) to be used for the franchise fee, real estate, and working capital, making your overall financing package more manageable.
Turning to your personal network for a loan or investment can be a fast way to secure funds. However, this path must be managed with extreme professionalism to protect your relationships. All terms should be formalized in a legal loan agreement drafted by an attorney, clearly stating the loan amount, interest rate, and repayment schedule. This not only prevents personal disputes but also provides clear documentation for your primary lender, who will need to distinguish between a loan (a debt) and a gift (equity).
| Product | Typical Down Payment | Typical Term | Collateral / Personal Guarantee | Speed to Close* | Pros | Watch‑outs |
|---|---|---|---|---|---|---|
| SBA 7(a) | 10–20% | up to 10 yrs (WC); up to 25 yrs (RE) | Lien on business assets; PG for ≥20% owners | 30–90 days | Lower cash injection; long terms; broad use of proceeds | Packaging heavy; fees; collateral & PG requirements |
| Bank / Conventional | 20–30%+ | 3–7 yrs (equip/WC); longer if RE | Often lien on business + additional collateral; PG likely | 15–45 days | Faster underwriting; potentially lower fees | Stricter credit/experience; higher cash down |
| Franchisor Financing | Varies (often 10–25%) | 3–7 yrs | Usually PG; sometimes limited collateral | 10–30 days | Brand understands model; streamlined | Rates can be higher; cross‑default risk with franchise agreement |
| ROBS | 0% (uses retirement funds) | N/A | No loan/PG (equity funding) | 15–45 days | No debt service; preserves cash | Complex compliance; retirement risk; ongoing plan admin |
| Equipment Financing | 0–20% | 3–7 yrs | Secured by equipment | 7–21 days | Asset‑backed; quick; preserves other capital | Only for hard assets; residual obligations |
| Seller Note | Reduces primary loan | 3–5 yrs typical | Usually subordinate; may not need additional collateral | Aligns incentives | Lowers cash outlay; improves lender confidence | Requires franchisor approval on resales; intercreditor terms |
*Timelines vary by lender and the quality/organization of your application package.
Comparing franchise financing options requires looking beyond the headline interest rate. The "best" financing is the one that aligns with your business goals, cash flow, and tolerance for risk. You must evaluate each financing method on a few key criteria.
Always ask for the Annual Percentage Rate (APR), not just the interest rate, as the APR includes origination fees, closing costs, and other charges. A loan with a low-interest rate but high fees could be more expensive over its lifetime. Also, compare the loan terms. A longer term (like a 10-year SBA loan) will have a lower monthly payment, preserving your working capital, even if the total interest paid is higher over time.
Your timeline matters. A traditional bank loan or a ROBS structure might be faster to fund than an SBA loan, which can take 30 to 90 days to close. Actual SBA timelines vary by lender and by the completeness of your documentation (packaging quality). This speed could be critical if you are trying to secure a highly desirable territory. You must also consider control. Accepting funds from private investors may require you to give up equity or a degree of decision-making power, a trade-off you wouldn't face with a traditional lender. You must also consider control. Accepting funds from private investors may require you to give up equity or a degree of decision-making power, a trade-off you wouldn't face with a traditional lender.
Understand precisely what assets you are pledging to secure the loan. Most business loans will require a lien on your business assets. SBA lenders generally require a personal guarantee (PG) from any owner with ≥20% ownership; understand the scope of guarantees and any liens on personal assets. Some conventional lenders may also place a lien on your personal residence. You must be comfortable with these requirements. Finally, compare the down payment needed for each financing option and ensure you have enough liquid capital left after the down payment to manage the business's day-to-day operations.
A typical first‑unit purchase might combine: SBA 7(a) 70% + Seller Note 15% (subordinated) + Cash Injection 15%. For equipment‑heavy brands, you might allocate: SBA 50% + Equipment Loan 25% + Cash 15% + Seller Note 10% to match assets to financing sources while preserving working capital.
Financing a franchise purchase is a process of matching your solid business plan and financial profile with the right funding vehicle. By understanding the FDD and preparing your financials in advance, you position yourself as a credible and attractive candidate for lenders. Whether you pursue a comprehensive SBA loan, leverage franchisor financing, or create a package with seller and equipment financing, the right funding is available for a strong opportunity. This preparation is the foundational step toward successfully launching your new franchise.
Ready to explore your options? Consult with our franchise acquisition team to find the right path forward.