Franchise Loans: Do You Qualify?

Q: Tips On Buying A Franchise System

Assess whether you fit with the franchise: Do your skills and past experience compliment the franchise you want to buy? Do you have any resources or business contacts that you can leverage to run a successful venture? These are just some of the fundamental questions to ask. Read the franchise agreement carefully: As you research possible franchises to buy, request a franchise kit from each and every one of the franchisors. Read it carefully to really understand what you're signing up to and whether it fits with your overall business and lifestyle goals. Consider a franchise course: A few universities actually offer pre-entry franchise programs that will give you a better understanding of what running a business in a franchise system entails as well as your rights under Franchising Code of Conduct such as when you're able to end a franchise agreement. Speak to previous franchisees: The disclosure statement attached to the franchise agreement must include a list of current franchisees and their contact details, as well as a list of ex-franchisees for the last three years, and their contact details, and whether they were bought back, terminated and sold. Ask them questions! They can be your business mentors as you grow your franchise. Get financial and legal advice: Like buying a non-franchise business, consider enlisting the help of a financial professional to assess whether you're in a position to invest in the business and a solicitor to run through the terms of the franchise agreement with you. A business adviser will also help you to really question the projected turnover figures that the franchisor is quoting. Generally speaking, the turnover quote is the average, one-size-fits-all number that doesn't at all match your particular store size or location.

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Note: To get approved you must either have a minimum of 50% deposit or equity in a property that you own.

Franchise businesses offer greater stability and scalability than independent startups, making them a preferred choice for bank loans. If you want to buy a business with the support of a recognized brand and proven model, a franchise loan is ideal. These loans cover franchise fees, setup costs, inventory, and working capital for both new and existing stores. We’ll help you understand how much you can borrow and how to get approved.

What Is A Franchise Loan?

A franchise loan is a type of business loan designed to help you purchase a franchise store, outlet, or restaurant. It’s usually secured against the franchise business itself or an existing property you own. Importantly, the lender will conduct their own valuation of the franchise, this may differ from the franchisor’s estimate.

The loan generally covers key upfront costs such as the franchise fee, equipment, training, initial stock, and setup expenses. However, you’ll also need to demonstrate that you have sufficient working capital to support the business during its first 6 to 12 months of operation.

How Do Franchise Loans Work?

Franchise loans work very much in the same way as a standard business loan with similar features and commercial interest rates.

The biggest difference is that you can generally borrow more against the value of the business than if you were to buy a similar-sized non-franchise business in the same industry.

Because of this, you don’t need as big of a deposit or use as much equity in an existing residential property as security to complete the purchase.

A franchise loan has one major difference to a standard business or commercial property loan. The loan term is tied to the length of lease or, in the case of franchises, the franchise agreement term.

Because of this, lease terms are generally shorter for franchises, meaning there are few differences in the features available to you.

Franchise loans function similarly to standard business loans, with comparable features and commercial interest rates. However, they differ in key ways:

Higher Borrowing Capacity: You can typically borrow more against the value of a franchise compared to a similar-sized non-franchise business in the same industry. This reduces the need for a large deposit or significant equity in residential property as security.
Loan Term Alignment: The loan term is tied to the franchise agreement (usually 5–10 years) or, if secured with property, up to 30 years. Franchise lease terms are often shorter, which limits some loan features.

Key features of franchise loans:

Loan Amount: 50–70% of the business value for existing franchises; up to 65% for new stores. If secured with property, you may borrow up to 100% of the franchise cost.
Interest-Only Period: Typically 2 years, but longer if property is used as collateral.
Property as Security: Using property equity allows borrowing the full franchise cost.
No Low-Doc or Bad Credit Options: Lenders require full documentation and good credit.

Assessment criteria:

Existing Franchises: Lenders review business financials, including tax returns, profit and loss statements, and 2–3 years of bank statements.
New Franchises: Emphasis on your business plan, projected cash flow, and personal experience.
Franchise-Specific Considerations: The process of securing a franchise loan varies by franchise system. For example, an OPSM franchise has different requirements than an Oporto franchise.

What Are The Pros And Cons Of Franchise Loans?

Pros

Easier approval compared to starting an independent business
Option to borrow up to 100% using equity
Proven business models reduce risk
Access to franchisor’s training, marketing, and supplier networks

Cons

Limited control—franchise rules must be followed
Ongoing fees: royalties, national advertising, etc.
Loan term may be limited to the length of the franchise agreement
No options for low-doc or poor credit borrowers

Who Can Qualify For A Franchise Loan?

As long as the franchise is on an approved list with one of our lenders, you’ll generally only need to meet a few more requirements.

Firstly, for an existing store, the bank will want to see the last 2-3 years business financials of the current franchisees including business tax returns, profit and loss statements and business bank statements.

There is usually an interest cover requirement as well which is essentially how many times yearly earnings before interest, tax, depreciation and amortisation (EBITDA) can service or cover the interest component of the loan amount you want to borrow.

New stores won’t have this information, in which case the bank will be relying more on your business plan, which should provide details on cash flow forecasts and how you plan to inject your own working capital and resources in running a viable store.

Bear in mind, the bank will typically want to see a business plan for an existing store as well.

That’s because the deal has to make sense: it’s important to present a franchise loan application in the best light which is the reason it’s essential that you come to the table with previous experience in a similar-sized venture in a similar industry.

For example, if you want to buy a Bakers Delight franchise, the typical requirement is that you have 3-5 years experience in a managerial role in either a bakery or at least in a food service/sale capacity.

Without experience, the bank will be concerned that you don’t have the skills and expertise to manage a business and staff effectively.

Which Franchises Are Accepted?

The below list are just some of the franchise loans that we can help you get approved for:

If you don’t see a franchise that you want to buy on the above list, complete our free assessment form and let us know what you need a business loan for.

We’re experts in commercial finance, with a number of our senior mortgage brokers actually coming from the credit departments of some of Australia’s largest banks and lenders.

Getting tough loans approved is our specialty!

Let’s Make It Happen

Buying a franchise is a big move, but you don’t have to do it alone. Our expert brokers specialise in franchise loans and know which lenders support your business goals. Talk To An Expert

Frequently Asked Questions

Can I buy an existing franchise?

Yes you can!

In many ways, you'd go through the same due diligence process as if you were buying a non-franchised small business from a vendor.

The franchisee is still a business owner no matter if he's part of a franchise system or not and you're buying into that reputation and goodwill.

Some steps you might consider taking include:

Checking the last 3 years financial information of the franchisees including profit and loss statements, cash flow reports and business bank statements.
Simply asking why the franchisee is selling is a crucial step that many franchise buyers fail to do. In doing so, you can usually identify problems like the business suffering from a poor location (red flag) or simply poor management (an opportunity for you to turn things around).
What is in the lease agreement? Typically, you won't be buying the franchise as a freehold going concern so you should determine how long is left on the lease and what other arrangements there are, bearing in mind that there is usually a head lease arrangement in place between you, the franchisor and the landlord.
Hiring a qualified builder or architect to look at the fixtures and fittings of the premises to make sure they're in working order and that the premises are ready for trade.
Organising with a solicitor to have a null and void condition in the contract of sale (heads of agreement) to ensure that any necessary reparations be undertaken by the franchisee before the sale goes ahead.

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Franchise vs Independent Business: What’s the Difference?

Franchise

By purchasing a franchise, you're essentially buying yourself a job with a proven system for making money.

Unlike a business, you're walking into a well-established brand name like Bakers Delight or Hog's Breath.

Having such a big presence before you even open your doors is something you just don't get if you're looking to fund a start-up business.

You're also in the position to leverage the national marketing and advertising capabilities of the parent company as well as the existing relationships they have with distributors and suppliers.

Access to education and training is also a massive benefit.

Franchises are truly turnkey business and a select number of lenders see it this way as well.

It's the reason why they're willing to lend you up to 70% of the business value for particularly strong franchise models.

Of course, the drawbacks of a franchise model is that you don't always get full autonomy, with minimum standards set for how the store is to be set up, what products and services you can provide and the requirement for you to take orders from head office when needed, such as being involved in national marketing campaigns.

The franchisor and select lenders may consider the franchise to be operating under a proven model but it doesn't automatically mean your business will be successful.

You're still having to invest your own capital in getting the franchise off the ground as well: there's no free ride.

On top of that, you'll have to pay ongoing fees such as royalties and national advertising costs as part of the franchise agreement.

Luckily, these costs are fixed and the money required for suppliers and distributors are often lower than similar-sized non-franchise business purely because of the buying power of the parent company.

Business

The obvious benefit of a business is that you get full autonomy as to what kind of trade you can undertake, subject to state and federal licensing laws and the zoning of the commercial premises itself.

The costs are also significantly less than starting your own venture.

There's no answering to upper management so you're free to run your own affairs regarding training, setting standards and values for the business as well as running your own marketing campaigns.

On that note, when starting your own business, you're in a position to buy a freehold property and fit it out yourself, giving you a piece of land and property that will either retain its value or appreciate.

This is a key point of difference with a franchise because you're relying solely on your skills and expertise to build a successful business, build up the goodwill and eventually sell it for a profit.

This reduces the overall risk of relying on the business alone as your sole source of income.

On top of that, you're actually free to wrap up the business whenever you see fit while exiting a franchise agreement will require you to actually sell the business to another franchisee before you can exit.

Of course, the big drawbacks of a business are that you have to build your own brand and reputation with clients as well as develop relationships with suppliers and distributors that you may need to run your business.

All of this takes time and a considerable amount of money, particularly when you take into that you don't have any best practice standards to rely on when you're out on your own.

Tips On Buying A Franchise System

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