Franchise Finance: How a Franchise Purchase Is Funded

People ask about a franchise loan as though it were one product. It almost never is.

A franchise purchase is three separate costs, and they are funded three different ways by three different parts of the lending market. Treating them as one request is the quickest way to end up paying unsecured pricing on something that could have been financed far more cheaply.

The three costs

The franchise fee. What you pay the franchisor for the right to operate the brand. It buys a licence, a system and training, and none of that is a physical thing.

The fitout and the equipment. The build, the signage, the kitchen, the plant, the vehicles. Physical assets with resale value.

Working capital. Stock, wages, rent and the money to trade through the first months before the site is established.

Those are not interchangeable, and a lender does not see them as one number.

The franchise fee is the hard part

Because there is nothing to secure against. A lender funding a franchise fee is lending against your ability to repay and nothing else, which puts it in the same category as any other unsecured business lending. The mechanics are in what is an unsecured business loan.

Worth knowing: dedicated franchise products are rare. Across a broad commercial panel you will find very few lenders offering a facility built specifically for franchise funding. Most franchise purchases are funded with general-purpose business facilities where the franchise simply happens to be the purpose. That is not a problem, but it does mean "franchise finance" is more often a structure than a product, and anyone presenting it as a single off-the-shelf thing is simplifying.

The fitout and equipment should not be on an unsecured loan

This is where most of the money usually sits, and it is the part you can fund properly.

Equipment, fitout, signage and vehicles are assets, so financing them against the asset is generally cheaper and runs longer than borrowing unsecured to pay for the same things. See equipment finance, and low doc business loans where the asset carries the security and the paperwork is lighter.

If the franchise is a food business, the fitout economics and the lender appetite are covered in more detail in business loans for cafes and restaurants.

Working capital is the part people underestimate

A franchise bought with nothing left over is a franchise that cannot pay its first invoices. New sites take time to reach the turnover the franchisor's model assumes, and the gap between opening and that point has to be funded by something.

If the need is a fixed amount, an unsecured facility fits. If it is a recurring seasonal gap, a line of credit is the better shape.

Whose trading history is being assessed

The same rule as any acquisition: the lender assesses the business you already run, not the franchise you are buying. Projected turnover from the franchisor's model is a projection, not a trading record, and it does not carry serviceability on its own.

So if you already operate a business, this is a real conversation now, and business acquisition loans sets out how that assessment works. If this would be your first business, the position is harder and the routes are narrower, which is covered in startup and new business loans.

A multi-site operator adding another location is the easiest version of this. A first-time franchisee with no trading entity is the hardest.

Two things specific to franchises

The franchisor may have preferred or accredited lenders. For established brands this is common, and those arrangements can be genuinely convenient. They are not automatically the best terms available to you, and you are not obliged to use them. Compare before you commit.

The franchise term can cap the loan term. A lender will not usually write a facility running past the end of the franchise agreement, because the income funding the repayments stops at that point. If you are buying into the back half of a term, that shortens the loan and raises the repayment, and it is worth knowing before you budget.

Before you sign anything

The Franchising Code of Conduct gives you time, and it is worth using.

You are entitled to a waiting period of 14 days, not business days, before you enter a franchise agreement. For a new agreement you also have a cooling off period of 14 days after signing. That does not apply to a renewal or an extension, and in some circumstances it can end later.

Use that window to have the disclosure document read by your accountant and your solicitor, and to get the finance structure settled rather than assumed. A franchise agreement signed before anyone has looked at how it will be funded is a common and expensive sequence.

FACT REGISTER: HIGH. Claims: under the Franchising Code of Conduct a prospective franchisee is entitled to a waiting period of 14 days, not business days, before entering a franchise agreement, and to a cooling off period of 14 days after signing a NEW franchise agreement, which does not apply to a renewal or extension and may end later in some circumstances. | Source: ACCC, Franchising model disclosure document, April 2025, current as at 1 April 2025, referring to the Competition and Consumer (Industry Codes-Franchising) Regulations 2024, Schedule 1. | Could change: the Franchising Code was remade in 2024 and is subject to periodic review. | Verified: 22 October 2026.

What the lender will want

Broadly the same ground as any application, set out in business loan requirements and eligibility, with a few additions: the franchise agreement and disclosure document, the franchisor's model for the site, evidence of your own contribution, and a clear split of what each part of the money is doing. If there is adverse credit on the director, bad credit business loans covers how differently lenders treat it.

How you hold the franchise decides who borrows and who signs, which is covered in how business structure affects finance.

Where a broker fits

Splitting the request into its three parts and putting each one in front of the right lender, rather than asking one lender for a single number. That alone usually changes what the purchase costs over its life.

The other part is being honest about which of the three costs is actually fundable in your situation, which depends far more on what you already run than on which brand you are buying.

See our unsecured business loans page for what we arrange.

Damo Treadgold is the director of Treadgold Finance, an FBAA-accredited finance broker on the Sunshine Coast, arranging business, vehicle and equipment finance Australia-wide.

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