Most franchise purchases are financed with an SBA 7(a) loan in the US or a Canada Small Business Financing Program loan plus a bank term loan in Canada, made by a lender that already knows the brand. Your own cash injection, your experience and the franchise's track record decide the outcome more than anything else.
How franchise financing works
A franchise loan is a business loan with a playbook attached. The lender is underwriting three things at once: you, the brand and the location.
You. Lenders want relevant management experience, good personal credit and real cash to put in. Most expect an owner injection, typically at least 10 percent of the total project for a new SBA franchise loan and often more for a conventional bank loan.
The brand. The Franchise Disclosure Document (FDD) tells a lender the fees, the support, the unit count, the closure rate and, if the franchisor provides it, the Item 19 financial performance representation. Lenders track how units of a brand perform across their own portfolios and nationally. A brand with a long record and few closures is easier to finance than a new concept with a handful of locations.
The location. A lease, a site plan and a buildout budget show what the store will cost and how it will open.
The total project usually covers the franchise fee, buildout or leasehold improvements, equipment, opening inventory, signage, training costs and working capital to carry the first months. Lenders want to see the whole number, not just the fee.
Who lends to franchise buyers
| Lender type | Role in a franchise deal | Best for |
|---|---|---|
| SBA lender | Primary loan, long term | New units and resales, most brands |
| Bank | Conventional term loan or SBA | Strong buyers, established brands |
| Credit union | Smaller loans, local units | Members buying a single location |
| Equipment lessor | Kitchen, fixtures, vehicles | Reducing the main loan size |
| Commercial real estate lender | Land and building | Owner occupied freestanding sites |
| Online lender | Bridge or working capital | Short gaps only |
| Franchisor financing | Fee or equipment help | Brands that offer in house programs |
SBA lenders do the bulk of franchise lending in the US. The SBA 7(a) loan covers the franchise fee, buildout, equipment and working capital in one loan with a long term. The brand needs to be eligible, which lenders confirm through the SBA Franchise Directory, so check that first. Lenders with a busy franchise practice often have relationships with franchisors and know which brands perform.
Banks lend conventionally to buyers with strong liquidity and experience, or for an established brand where the bank already finances other units. Multi unit operators adding stores often move to conventional bank debt once they have a track record.
Credit unions can be a good fit for a single unit purchase by a member, often through the SBA program.
Equipment lessors finance kitchens, fixtures and vehicles separately, which lowers the size of the main loan and can preserve cash.
If you are buying or building the property, the SBA 504 program or a commercial real estate lender can finance the land and building on a long term while the 7(a) covers the business.
Lenders that rarely fund the full purchase include online lenders and revenue based funders. They can cover a short working capital gap after opening, but they are not built to finance a franchise from scratch.
Buying a franchise in Canada
Canadian franchise buyers usually combine a Canada Small Business Financing Program loan, which covers equipment, leasehold improvements and some working capital, with a conventional bank term loan or line of credit. The major banks run dedicated franchise lending teams and keep lists of brands they already finance, which often speeds approval and can improve terms. BDC also finances franchise purchases. Franchise disclosure rules are set provincially in places such as Ontario, Alberta and British Columbia, so your disclosure document will follow your province's requirements.
Buying an existing franchise
A resale is a business acquisition with a franchise agreement attached. The lender will want the store's own tax returns and profit and loss statements for the last three years, the purchase agreement, a business valuation and the franchisor's written approval of the transfer. Resales are often easier to finance than a new unit because the location already has a performance record. Seller notes can count toward the down payment in some structures.
What to prepare
- The Franchise Disclosure Document and the signed or draft franchise agreement.
- A business plan with a monthly cash flow projection for the first two to three years, using the brand's Item 19 figures where available.
- A full project budget: fee, buildout, equipment, inventory, signage, training and working capital.
- Proof of your injection, with bank or investment statements covering the source of funds.
- Personal tax returns for three years and a personal financial statement for each guarantor.
- A resume showing management or industry experience.
- The lease or letter of intent for the site, and contractor quotes for the buildout.
- For a resale: three years of the store's financials, the purchase agreement and the franchisor's transfer approval.
The order to approach lenders
- Ask the franchisor which lenders already finance the brand. Most keep a list. A lender that knows the brand underwrites faster.
- An SBA lender or Canadian bank franchise team with experience in that brand, for the main loan.
- Your own bank or credit union, as a comparison, especially if you have deposits and history there.
- An equipment lessor, in parallel, for the kitchen, fixtures or vehicles.
- A commercial real estate lender or SBA 504 lender, only if you are buying the property.
Get the financing conversation started before you sign the franchise agreement. Lender feedback on the brand and the budget is valuable before you commit. You can find franchise lenders by place, such as Texas, Florida or Ontario, and compare those that offer franchise financing.
Need help choosing a lender? Sign up through BusinessLoanBroker.ai to share your financing needs and get help with your next steps. You can also explore financing guides and tools before you apply.