Quick answer
Franchise finance funds the purchase of a new franchise or an existing franchised business, covering items such as the franchise fee, fit-out, equipment and working capital. Lenders consider the franchise system's track record, the franchisor's approval, the franchise agreement and lease terms, and the buyer's experience and contribution. A strong system can make lenders more comfortable, but it does not replace the buyer's own due diligence.
Key points
- Lenders look at the franchise system as well as the buyer.
- Fit-out and equipment can often be financed with asset finance.
- The franchise agreement and lease length must cover the loan term.
- The Franchising Code requires disclosure documents; read them closely.
At a glance
- What is funded
- Franchise fee, fit-out, equipment, stock, working capital
- New or resale
- Both; resale franchises have trading history to assess
- Security
- Equipment, property equity or a combination
- Key documents
- Disclosure document, franchise agreement, lease, financials
Our review: franchise finance at a glance
What works well
- Established systems can reassure lenders
- Proven operating model and brand
- Resale franchises come with trading records
- Fit-out and equipment can be financed separately
What to watch
- Ongoing royalties and marketing levies reduce cash flow
- Franchisor approval adds steps and time
- Agreement terms can restrict selling or exiting
- System problems can affect your business
Usually suits
- Buyers who want a proven model and support
- Experienced operators buying a resale outlet
- Owners with a deposit or property equity
Probably look elsewhere if
- The system has a history of franchisee failures
- Projected earnings cannot be verified
- The franchise term or lease is shorter than the loan
A franchise offers a business with the hardest parts already worked out: a brand, a system, suppliers and support. That track record is attractive to lenders as well as buyers. But a franchise also comes with fees, rules and a contract that shape how the business can run and how it can be sold. Franchise finance needs to account for all of it.
New franchise or resale?
A new franchise means setting up an outlet from scratch, usually with a franchise fee, fit-out, equipment, initial stock and working capital to cover the ramp-up. Lenders rely heavily on the system’s performance elsewhere and the buyer’s experience. A resale franchise is an existing outlet bought from its current franchisee, with financial statements and BAS that can be verified. Resales are often easier to assess, but the price includes goodwill, which lenders cannot repossess.
What lenders look at
| Area | Questions lenders ask |
|---|---|
| The system | How long has it operated, how many outlets, how many franchisees have left? |
| The site | Location, lease terms, local competition |
| The documents | Franchise agreement term, renewal rights, transfer rules, fees |
| The numbers | Verified trading for resales; realistic forecasts for new sites |
| The buyer | Experience, contribution, credit history |
Franchisor approval of the buyer is normally required, and lenders will want the franchise agreement and lease to run at least as long as the loan.
Funding the pieces
Many franchise purchases are funded in parts. The fit-out, kitchen equipment, vehicles or point-of-sale systems can often be funded through equipment finance, which uses the assets as security. The franchise fee and goodwill usually need a buyer contribution or property security. A working capital buffer for the first months is essential, because new outlets rarely hit full trade immediately. Our guide to fit-out finance explains how fit-outs are treated.
Ongoing costs that affect your repayments
Royalties, marketing levies, technology fees and required refurbishments all come out of revenue before loan repayments. Model them carefully. A franchise that looks profitable before fees can be tight after them, and lenders will do this calculation too.
Your own due diligence
The franchisor must provide disclosure documents under the Franchising Code of Conduct. Read them, speak to current and former franchisees, and get independent legal and accounting advice. The business.gov.au franchising page outlines your rights and the steps involved. Buying a resale? Our business acquisition loans review and due diligence guide apply as well.
An illustrative example
A made-up couple wants to buy a resale outlet in an established food franchise. The outlet has four years of financial statements, which match its BAS and bank records. The franchise agreement has six years to run with a renewal option, and the lease runs for a similar period.
The kitchen equipment and fit-out are financed with equipment finance over the remaining franchise term. The goodwill is funded by the couple’s savings and a loan secured against their home. They set aside working capital for the first quarter, knowing royalties and marketing levies come out before profit.
The structure is sound because the term of every loan sits inside the franchise and lease terms, the figures are verified and the buyers contribute their own funds. If the franchise agreement had only two years left, lenders would be far more cautious about a longer loan.
Questions to ask the franchisor
- How many outlets have closed or changed hands in recent years, and why?
- What are all the ongoing fees, levies and required refurbishments?
- What approval is needed to sell or transfer the franchise later?
- What support is provided in the first months of trading?
- Can you speak to current and former franchisees?
Funding your franchise
If you have chosen a system and a site, and you can contribute a deposit or offer security, franchise finance may be the way to get started. To explore options, make one enquiry. There is no credit check when you first enquire, your details go to one lending partner rather than a crowd, and a real person reviews them. Tell us whether it is a new or resale franchise, the total cost and your contribution. If you have the franchisor’s estimate of setup costs, mention it in your enquiry.
Frequently asked questions
Do lenders prefer certain franchise brands?
Lenders consider each system's track record, number of outlets, franchisee turnover and support. A system with a long, stable history may be easier to finance, but the individual site and buyer still matter.
Can I finance the franchise fee?
Sometimes, as part of a broader loan, but because a franchise fee has no resale value, lenders often expect a buyer contribution or other security.
What is the Franchising Code of Conduct?
It is a mandatory code that regulates conduct between franchisors and franchisees, including disclosure before you sign. The ACCC oversees it. Read the disclosure document carefully and get independent advice.
Is buying a resale franchise easier to finance?
Often, because there are financial statements and BAS from the existing outlet to assess. Verify the figures against bank records and check the remaining franchise and lease terms.
Sources and further reading
We are an information site, so we do not rank lenders, publish interest rates or accept payment to feature a product. Every page is written and checked by our editorial team against official sources. Read our editorial policy and how we are funded.
