Last updated: November 2026
Financing a franchise starts with the franchisor's Franchise Disclosure Document (FDD). Item 7 estimates your total initial investment, including funds for an initial operating period, and Item 10 lists any financing the franchisor offers. Buyers typically combine their own cash (SBA lenders require at least 10% equity for a start-up) with an SBA 7(a) or 504 loan or a bank loan, and often add equipment financing, franchisor financing or a working capital line. SBA lenders check that the brand is in the SBA Franchise Directory. Budget for the top of the Item 7 range plus a cash cushion.
Step 1: Build your budget from the FDD
The FTC's Franchise Rule requires a franchisor to give you its current disclosure document at least 14 calendar days before you sign a binding agreement or pay the franchisor anything (16 CFR 436.2). Three items drive your financing plan (16 CFR 436.5):
| FDD item | What it tells you | Why it matters for financing |
|---|---|---|
| Item 5: Initial fees | The initial franchise fee and whether any part is refundable | Often paid in cash at signing; some lenders will finance part of it |
| Item 6: Other fees | Royalties, marketing fund, technology and other ongoing fees | Reduce the cash flow available for loan payments |
| Item 7: Estimated initial investment | A table of every start-up cost, with low and high estimates, including "Additional funds" for an initial period | This is the number to finance. The rule says a reasonable initial period is at least three months or a reasonable period for the industry. |
| Item 10: Financing | Any financing the franchisor or its affiliates offer, directly or through arrangements with lenders | Compare its terms against SBA and bank offers |
| Item 19: Financial performance representations | Any sales or profit figures the franchisor chooses to give, with their basis | Useful input for projections, but it is optional and not a forecast for your location |
| Item 21: Financial statements | The franchisor's own financial statements | Shows whether the franchisor can support the system |
Item 7 categories typically include the initial fee, real estate and leasehold improvements, equipment, fixtures, signs, opening inventory, deposits and licenses, required training and travel, and additional funds. Use the high end of the range for planning, and add your own personal living costs during ramp-up, which Item 7 does not cover.
Step 2: Work out how much cash you need
Lenders want you to have money in the deal. For SBA loans, a start-up (including a new franchise unit) or a business acquisition needs an equity injection of at least 10% of total project costs under SBA's SOP 50 10. Individual lenders and franchisors can require more, and many franchisors set their own minimum liquid capital and net worth. Lenders also look at what you will have left after closing.
Hypothetical example: a franchise with an Item 7 high estimate of $350,000.
| Item | Amount |
|---|---|
| Total project cost (Item 7 high estimate) | $350,000 |
| Minimum SBA equity injection (10%) | $35,000 |
| Loan request if you inject exactly 10% | $315,000 |
| Personal reserve for living costs during ramp-up (your estimate) | Varies; often several months of expenses |
Using every dollar you have to close leaves nothing for a slow opening. Plan for the loan, the injection and a personal reserve.
Step 3: Choose your financing sources
| Source | Best for | Key points |
|---|---|---|
| SBA 7(a) loan | Most of a new unit's costs: buildout, equipment, fee, working capital | Up to $5 million; SBA rate caps; 10-year maturity for most uses, up to 25 years for real estate |
| SBA 504 loan | Buying or building the real estate, long-life equipment | $25,000 to $5.5 million; fixed rate; typically 50% bank, up to 40% CDC, at least 10% borrower |
| Conventional bank loan | Experienced operators and multi-unit owners | Usually stronger credit, collateral and experience needed |
| Franchisor financing (Item 10) | Part of the franchise fee, equipment or development costs | Read the terms in Item 10 and the loan documents, including default and cross-default with the franchise agreement |
| Equipment financing or leasing | Kitchen, fitness, vehicle and other brand-required equipment | The equipment secures the loan; see our equipment financing guide |
| Rollover for business start-ups (ROBS) | Using retirement savings without an early-withdrawal penalty | Legal but complex; the IRS has found frequent compliance problems |
| Home equity | Part of the equity injection | Puts your home at risk if the business struggles |
SBA figures are from SBA's lender program comparison. For how SBA loans work, see our SBA loan guide.
SBA loans and the Franchise Directory
SBA publishes the SBA Franchise Directory for lenders and CDCs "in evaluating the eligibility of a small business that operates under an agreement." SBA also states that a listing "is not an endorsement or approval of the brand and does not ensure the success of the business." Ask the franchisor whether the brand is listed before you apply.
SBA ownership rules apply to franchise buyers too. Since March 1, 2026, every direct and indirect owner of a 7(a) or 504 borrower must be a U.S. citizen or U.S. national whose principal residence is in the U.S. Confirm current eligibility with your lender.
Franchisor financing
Some franchisors finance part of the initial fee or equipment, or have arrangements with outside lenders, and must describe them in Item 10, including the rate, term, security, guarantees and what happens on default. Check whether a default on franchisor financing can also be a default under the franchise agreement, which could cost you the franchise itself.
ROBS
Some buyers use retirement savings through a "rollovers as business start-ups" arrangement. The IRS does not consider ROBS abusive in itself, but its compliance project found frequent problems, including business failures and missed filings. Treat ROBS as high risk and get qualified tax and legal advice before using it.
Step 4: Prepare a lender-ready package
- the FDD and franchise agreement, and the brand's SBA Franchise Directory status;
- a business plan with monthly projections for at least the first two years, built from Item 7, Item 6 fees and, where available, Item 19, with your assumptions stated;
- a sources-and-uses table showing your equity injection and where it comes from;
- personal financial statement, personal tax returns and bank statements showing the injection;
- a résumé showing management or industry experience;
- a lease letter of intent or site plan, and equipment and buildout quotes.
Our guide on how to prepare financial statements helps with the projections.
Buying an existing franchise location
Buying a resale changes the math: you have the location's actual tax returns and bank statements, but you also need the franchisor's approval of the transfer and you may pay a transfer fee. SBA 7(a) loans can finance business acquisitions, with the same 10% minimum equity injection; ask the lender how a seller note would be treated. See our guide to a business loan for buying an existing business.
Financing for franchise owners who are already open
Once a location has a track record, more options open up: equipment financing for new brand-required equipment, a line of credit for seasonal swings or remodel deposits, and term loans for a second unit. Short-term options such as merchant cash advances are expensive and are rarely the right way to fund a new unit's buildout, which is a long-term asset. See our guide to working capital for small businesses.
Frequently asked questions
How much money do I need to buy a franchise?
Start with the high end of Item 7 in the FDD. For an SBA loan, plan on at least 10% of the total project cost as your own equity, plus whatever liquid capital the franchisor requires and a personal reserve.
Can the franchise fee be financed?
Often, as part of an SBA 7(a) or bank loan for the whole project, or sometimes through franchisor financing listed in Item 10. Some lenders expect the fee to come from your injection.
Is it easier to finance a franchise than an independent start-up?
Lenders can compare a franchise with other units in the system and use the FDD's disclosures, which can help. It is still a start-up loan, so expect the same scrutiny of your experience, credit and cash.
Can FSE finance a new franchise?
FSE (Funding Solutions Experts) is an independent commercial finance brokerage that works with 50+ lending partners, which generally require at least 1 year in business and $10,000 or more in monthly revenue. That means FSE is a better fit for franchise owners who are already operating and want equipment, working capital or expansion financing than for a brand-new unit. FSE is paid by commission from its partners, never charges the business a fee and does not run a credit check to apply.
If you already run a franchise location that meets those minimums, you can apply with FSE to compare offers from several lenders at once.