Franchise financing is the mix of money you use to open or buy a franchise unit, and most owners draw on three or four sources at once: their own cash, a long-term loan for the franchise fee and build-out, equipment financing for the kitchen, fixtures or vehicles, and sometimes financing the franchisor offers. The Franchise Disclosure Document tells you how much to raise. Item 7 lists the estimated initial investment line by line, and Item 10 describes any financing the franchisor or its affiliates offer. Once the unit is open and depositing sales, revenue-based financing and lines of credit can cover working capital, remodels and the next location.
What a franchise costs, according to the FDD
The Federal Trade Commission's Franchise Rule requires franchisors to give every prospective franchisee a disclosure document with 23 specific items about the franchise, its officers and its other franchisees. The FTC's consumer's guide to buying a franchise says you must receive the document at least 14 days before you are asked to sign a contract or pay the franchisor any money. Lenders read it too.
Item 5 and Item 7 show the cost to open
Item 5 covers the initial franchise fee and whether any of it is refundable. Item 7 is the full estimate, in a table titled "Your Estimated Initial Investment." Under 16 CFR 436.5, the table lists the franchise fee, training, real property, equipment, fixtures, construction and leasehold improvements, opening inventory, and deposits, licenses and prepaid expenses. It also needs a line called "Additional funds" for expenses before opening and through an initial period of operations, which the rule says is reasonably at least three months. Costs that vary are shown as a low to high range, and the table ends with a total.
Here is how an Item 7 table might read for a quick-service food unit, using example numbers only.
| Type of expense | Example amount |
|---|---|
| Initial franchise fee | $40,000 |
| Training travel and lodging | $5,000 |
| Leasehold improvements and build-out | $250,000 |
| Equipment, fixtures and signs | $150,000 |
| Opening inventory | $15,000 |
| Deposits, licenses and prepaid expenses | $20,000 |
| Grand opening marketing | $10,000 |
| Additional funds for the first three months | $60,000 |
| Total estimated initial investment | $550,000 |
A real Item 7 shows a range on most lines, and real estate and build-out usually account for most of the gap between the low and high totals. The FTC guide says initial franchise fees typically range from tens of thousands of dollars to several hundred thousand and may be non-refundable. Item 6 lists ongoing fees such as royalties and advertising contributions, which the FTC notes you typically owe even when the unit is losing money. The guide also suggests budgeting your operating expenses for the first year and your personal living expenses for up to two years, since it may take more than a year to break even.
Item 10 shows any financing the franchisor offers
If the franchisor, its agent or an affiliate offers financing, including leases and installment contracts, Item 10 has to describe each arrangement: what it covers, who the lender is and how it relates to the franchisor, the amount, the annual rate of interest plus finance charges, the number of payments, any security interest and personal guarantee, prepayment terms, and what happens on default. Item 7 adds a footnote when the franchisor finances part of the opening cost. If Item 10 shows no financing, the whole amount comes from you and outside lenders.
How franchise financing usually works
Each piece of the Item 7 total tends to go to the financing that suits it best, and lenders expect to see the full plan. Using the $550,000 example above, one possible split looks like this:
- $110,000 of the owner's own cash, 20% of the total.
- $150,000 of equipment financing for the equipment, fixtures and signs, at an example rate of 9% over five years, which comes to about $3,114 a month.
- $290,000 on a long-term loan for the franchise fee, build-out, opening costs and the three months of additional funds, at an example rate of 10% over ten years, which comes to about $3,832 a month.
That is about $6,946 a month in loan payments before rent, payroll, royalties and advertising fees, and lenders will want to see the unit's projected sales cover all of it with room to spare.
Your own cash and the down payment
Every lender wants your own money in the deal. The SBA sets 10% of the total project cost as the minimum for a start-up on its program, other lenders set their own figures, and a franchisor may have its own liquid cash and net worth requirements, so ask for those numbers early.
Financing from the franchisor
Franchisor financing can cover the fee, site, build-out, equipment, inventory or ongoing expenses, and Item 10 says which. Read the default terms closely, because Item 10 has to say whether a missed payment can end the franchise or trigger cross defaults. Compare it with outside offers on the same piece by rate, term, monthly payment and total cost.
Equipment financing for the build-out
Ovens, coolers, point-of-sale systems, signs, salon chairs, vehicles and other required equipment are often the easiest part of the opening cost to finance, because the equipment secures the loan or lease. Our guide to how equipment financing works covers loans versus leases, down payments and terms. Offers typically come back in one to two business days, and putting the equipment on its own financing lowers what the long-term loan has to cover.
SBA franchise financing rules
Many franchisees look first at SBA 7(a) loans, made by private lenders and partly guaranteed by the Small Business Administration. The rules are in the SBA's SOP 50 10, and version 8.1 took effect October 1, 2026. The SBA Franchise Directory, the list of brands the SBA has reviewed and found eligible, was dropped from SOP 50 10 7, effective August 1, 2023. SOP 50 10 8 brought it back on June 1, 2025, and 8.1 keeps it. Under the current rules:
- Any agreement that meets the FTC's franchise definition counts as a franchise, even one called a license or dealer agreement.
- A brand that meets that definition must be on the Franchise Directory before the lender can approve or submit the loan, and an unlisted franchisor has to apply to the SBA to be added.
- A business generating revenue from its intended operations for one year or less is a start-up, and a start-up 7(a) loan needs an equity injection of at least 10% of the total project cost.
- For start-ups and other loans based on projections, the lender needs detailed projections showing the business will cover its debt payments at least 1.15 times within two years of funding.
- The lender gets the signed franchise agreement and reviews credit information the franchisor provides, such as the number of failed franchisees and cash flow projections.
The SOP states that a listing is not an endorsement or a guaranty of the brand's success. Buying an existing franchised unit from its owner follows the change of ownership rules instead, covered in our guide to business acquisition loans.
SBA-equivalent loans through our partners
We don't place SBA loans. Through our partners we offer SBA-equivalent loans and bank loans of up to $5 million, long-term loans with monthly payments built along the lines of SBA lending. The partner sets the terms and decides whether a file qualifies, including one for a new unit, and since these loans sit outside the SBA program, the directory and the SOP's franchise procedures don't apply. Expect weeks rather than days, and a package much like an SBA lender's: personal financial statement, tax returns, debt schedule, franchise agreement and FDD.
Commercial equity loans for owners with property
If you or your business own commercial real estate, a commercial equity loan borrows against it as a loan or a line. Owners can put it toward the down payment and opening costs of a new unit, and because the property secures the loan, its value and your equity weigh heavily in the decision.
Franchise loans for a unit that is already open
Once a unit has a few months of deposits, it can qualify for financing decided on revenue that funds in days. That money usually goes to costs after opening, such as a required remodel, a second oven, new technology the system rolls out, inventory before a busy season, or the down payment on the next location.
Revenue-based financing is a merchant cash advance. A funder buys a share of the unit's future sales for a lump sum today, sizes it on usual revenue, and collects a set daily or weekly payment until the agreed amount is repaid. Advances run from $5,000 to $2,000,000, the decision rests mainly on four months of business bank statements, and most fund within one to two business days of choosing an offer. Cost is stated as a factor rate, so an example $50,000 advance at a 1.30 factor means $65,000 repaid. A line of credit of up to $250,000 suits costs that come and go, since you repay weekly or monthly on what you draw.
The funders we work with generally look for about a year in business and about $20,000 a month in deposits. If your unit isn't there yet, apply anyway, because some funders work with newer or smaller businesses, and we'll tell you what's realistic. For a unit that hasn't opened, see our guide to startup business loans, and food franchisees will find more in our restaurant financing guide.
What lenders check on a franchise loan
A franchise loan is underwritten on you and the brand together. The SBA's SOP lists the depth of management experience in the industry or a related industry among the factors its lenders weigh, and lenders outside the program look at a similar file.
- Experience in a similar business counts, whether managing a restaurant, a shop or another unit of the same brand. Franchisor training helps, but lenders still want proof you have managed people and money.
- Liquidity is the cash you hold outside the deal. Lenders check that you can cover the down payment and the additional funds Item 7 calls for and still keep a reserve.
- Credit means your personal score and history, including liens, judgments or bankruptcies, since a new unit has no credit file of its own. A lower score narrows the options without closing all of them.
- The brand's track record comes from the FDD. Item 20 shows units opened, closed, transferred or taken back by the franchisor over three years, Item 19 holds any earnings figures the franchisor chooses to give, and Item 21 has its financial statements. The FTC guide says talking to current and former franchisees, whose contacts the FDD lists, may be the most reliable way to check the franchisor's claims.
The FTC also warns that a bank approving a franchise loan doesn't mean the franchise is a safe investment, so go through the FDD with an accountant or franchise lawyer as well.
Financing more than one unit
Growing to several units often runs through an agreement giving the franchisee the right to develop more locations in a territory. The SBA's SOP calls these area development rights or a multi-unit franchise agreement, and a franchisee operating under one may be eligible if the applicant and its affiliated units together are small. A franchise development agreement, also called a master franchise agreement, works differently. Other franchisees own those units and the developer earns their royalties, so the SOP treats it as passive and ineligible. An owner running several brands needs every brand that meets the FTC franchise definition on the directory.
Outside the SBA program, multi-unit financing usually comes together one unit at a time, and the first units' bank statements and tax returns become the track record for the next. Owners often combine an SBA-equivalent or bank loan for the build-out, equipment financing for each unit, a commercial equity loan if they own real estate under earlier units, and revenue-based financing or a line of credit on the operating units' sales for a down payment or an opening. Keep each unit's books separate, since lenders will check that the new unit's payments don't strain the ones already open.
How we help with franchise financing
Today Capital Group is a funding broker. One application goes to the funders and lenders in our network whose programs fit, whether that is equipment financing for a new unit, an SBA-equivalent loan for a build-out, a commercial equity loan against property you own, or revenue-based financing and a line of credit for an open unit. Offers come back side by side and we go through them with you before anything is signed. There's nothing to pay to apply or to see offers, and no obligation to accept one.
Pull the FDD's Item 7 and Item 10 and your franchise agreement, and gather four months of business bank statements if you already run a unit. Then apply or call us at (818) 351-0225 to talk through how your opening or next unit could be financed.
Frequently asked questions
What is the best way to finance a franchise?
Most franchisees combine their own cash for the down payment, equipment financing for the equipment and fixtures the franchisor requires, and a long-term loan such as an SBA 7(a), bank or SBA-equivalent loan for the fee, build-out and opening costs. Item 7 of the Franchise Disclosure Document gives the total you need and Item 10 shows any financing the franchisor offers.
Is it hard to get a loan to open a franchise?
It takes more paperwork than financing an operating business, because a new unit has no sales history and the lender relies on projections, your experience, your credit and your cash. Owners with related management experience, a solid down payment, a cash reserve and a brand with a steady record in Item 20 of its disclosure document have the easiest time.
Is it possible to get a loan for a franchise?
Yes. Franchisees use SBA 7(a) loans, bank loans, SBA-equivalent loans, equipment financing, commercial equity loans and, in some systems, franchisor financing described in Item 10 of the disclosure document. Once a unit has a few months of deposits, revenue-based financing and lines of credit are available too.
Can I get an SBA loan to buy a franchise?
Yes, if the brand is on the SBA Franchise Directory, which SOP 50 10 8.1 requires for any agreement meeting the FTC's definition of a franchise. A new unit is a start-up and needs an equity injection of at least 10% of the total project cost, and the lender reviews the franchise agreement, your projections and the number of failed franchisees in the system.
What is the monthly payment on a $50,000 business loan?
It depends on the rate and term. At an example rate of 10% over five years, a $50,000 term loan costs about $1,062 a month and $63,741 in total, and at an example 9% about $1,038 a month. A $50,000 revenue-based advance is priced with a factor rate instead, so at an example 1.30 factor you would repay $65,000 through set daily or weekly payments.
