Few people buy a franchise with cash. Most combine savings with a loan, and the loan is easier to get for a franchise than for an independent business, because the lender can see how other locations of the same brand have done. This guide sets out the main routes, what each one asks of you and where to check whether a brand qualifies.
How much of your own cash you need
Lenders want you to put in part of the money yourself, usually 10% to 30% of the total project. On the typical brand’s cost to open, that works out as follows. The franchisor will also have its own minimums for liquid cash and net worth, often higher than the down payment, to be sure you can carry the business until it pays.
SBA loans
The US Small Business Administration doesn’t lend directly; it guarantees part of a loan made by a bank, which lets the bank lend with a smaller down payment and a longer term. The main program for franchises is the 7(a) loan, up to $5 million, used for build-out, equipment, the franchise fee and working capital. Real estate and large equipment can also go through the 504 program.
For a franchise, the brand must be on the SBA Franchise Directory, which means the SBA has reviewed its agreement for terms that would give the franchisor too much control over your business. About 43% of the brands here are listed, and 9 of the 12 most searched. The SBA franchise loans guide covers rates, terms and the down payment in detail, and the directory search shows whether a brand is listed.
Financing from the franchisor
Each franchisor has to say whether it offers financing, directly or through an affiliate, and on what terms. Of the 2,376 brands with known terms, 343 offer some financing, 62 only introduce you to outside lenders and 1,961 offer none. Where it exists, it is usually narrow: part of the franchise fee paid in installments, a note for equipment or a vehicle, or a lease on the premises. Commercial cleaning brands often finance the fee against the customer accounts they hand you.
| Brand | Cost to open | SBA listed |
|---|---|---|
| SubwaySandwich | $263K–$630K | Yes |
| Mr. HandymanHandyman | $162K–$215K | Yes |
| Panda ExpressFast food | $515K–$3.28M | Yes |
| Jan-ProCommercial cleaning | $130K–$422K | No |
| HOTWORXFitness | $289K–$830K | Yes |
| Ace HardwareRetail | $604K–$2M | Yes |
| Jani-KingCommercial cleaning | $50K–$138K | No |
| ServproRestoration | $263K–$386K | Yes |
| Jiffy LubeOil change | $211K–$510K | Yes |
| Century 21Real estate | $36K–$286K | Yes |
| Circle KRetail | $1.47M–$2.87M | Yes |
| IHOPBreakfast | $1.91M–$3.33M | Yes |
| Christian Brothers AutomotiveAuto repair | $515K–$650K | Yes |
| CoverallCommercial cleaning | $18K–$64K | No |
| Valvoline Instant Oil ChangeOil change | $192K–$3.48M | Yes |
| Molly MaidResidential cleaning | $144K–$204K | Yes |
| Play It Again SportsResale | $346K–$460K | Yes |
| My Salon SuiteSalon | $995K–$1.82M | No |
| Gong chaBubble tea | $207K–$648K | Yes |
| Senior HelpersHome care and senior care | $177K–$232K | Yes |
| Budget BlindsRetail | $101K–$211K | Yes |
| Mr. RooterPlumbing | $153K–$299K | Yes |
| Soccer ShotsSports | $43K–$54K | Yes |
| Liberty TaxTax | $50K–$71K | Yes |
| H&R BlockTax | $36K–$161K | No |
| Big O TiresTire | $544K–$2.74M | Yes |
| Express Employment ProfessionalsStaffing | $132K–$213K | Yes |
| Mosquito JoePest control | $150K–$192K | Yes |
| Mr. ElectricHandyman | $160K–$357K | Yes |
| Huddle HouseBreakfast | $555K–$2.38M | Yes |
Read franchisor financing carefully. Ask the interest rate, whether you sign a personal guarantee, and what happens on a missed payment: some notes let the franchisor end your franchise agreement if you default on the loan, so one late payment can cost you the business. Compare the rate with what an SBA lender offers before you accept.
Retirement rollovers (ROBS)
A rollover for business startups lets you use retirement savings without paying tax or an early-withdrawal penalty. You set up a new C corporation with its own retirement plan, roll your existing 401(k) or IRA into that plan, and the plan buys shares in your company, which then has the cash to open the franchise. Many owners use it for the down payment on an SBA loan.
It is legal but closely watched. The IRS says these arrangements aren’t abusive in themselves but can be when they mainly benefit one person, and it has found plans that failed to file the required annual returns or value the company’s shares properly. Set-up providers charge a fee and an ongoing administration fee, and if the business fails, the retirement money is gone. A 401(k) loan is the simpler alternative, generally limited to half your vested balance up to $50,000, and paid back from your own pay.
Home equity and other loans
A home equity loan or line of credit is often cheaper and quicker than a business loan, and some owners use one for the down payment. The risk is plain: the loan is secured on your house. Equipment leasing and financing spreads the cost of ovens, vehicles or machines over their life, and is common for restaurants and auto brands. Unsecured personal loans and business credit cards fill small gaps but are expensive for anything large.
Partners and investors are the other option. Bringing in a partner halves the cash but also the say and the profit, and the franchisor will usually want to approve every owner with a meaningful share.
Financing for well-known brands
The most searched brands, with the cost to open, the cash a 10% down payment would take on the low end and whether each is on the SBA directory. Most big restaurant brands are listed; a few of the largest don’t sell to buyers who need much financing at all.
| Brand | Cost to open | 10% down | SBA listed |
|---|---|---|---|
| Five GuysBurger | $928K–$1.38M | $93K | Yes |
| Chick-fil-AChicken | $318K–$3.46M | $32K | No |
| McDonald'sBurger | $1.47M–$2.64M | $147K | No |
| Massage EnvyMassage | $696K–$1.05M | $70K | Yes |
| 7 BrewCoffee | $941K–$2.28M | $94K | Yes |
| Taco BellMexican food | $1.86M–$4.31M | $186K | Yes |
| Dunkin'Donut | $532K–$1.83M | $53K | Yes |
| SubwaySandwich | $263K–$630K | $26K | Yes |
| Little CaesarsPizza | $377K–$1.77M | $38K | Yes |
| WingstopChicken | $310K–$1.05M | $31K | No |
| Jersey Mike'sSandwich | $436K–$1.16M | $44K | Yes |
| Handyman ConnectionHandyman | $116K–$239K | $12K | Yes |
Putting the financing together
Start from the brand’s high estimate, not the low one, and add six to twelve months of living costs. Decide how much cash you can put in without touching your emergency savings, then ask two or three SBA lenders that work with the brand for a quote; the franchisor can name lenders its owners have used. If you plan a retirement rollover, talk to a tax adviser before you sign up with a provider.
The cost calculator works out the loan and monthly payment for any brand, and the payback calculator shows how long a location takes to earn the money back at your own sales and costs.
Questions
Can I get a franchise with no money down?
Almost never. Lenders, including SBA lenders, want part of the project paid from your own cash, and franchisors check your liquid cash and net worth before they approve you. A few service franchisors finance part of the franchise fee, which lowers the cash needed, but you still need money for equipment, marketing and months of living costs.
Is it hard to get a loan for a franchise?
Usually easier than for an independent startup, because the lender can see how other locations of the same brand have done. Brands on the SBA Franchise Directory are the simplest, since the SBA has already reviewed their agreements; 43% of the brands here are listed. Lenders still look at your credit, your cash, any industry experience and the location. Search the SBA directory
Do franchisors give discounts instead of financing?
Some do. Many cut the franchise fee for veterans, for existing owners opening another location or for converting an existing business to the brand. A lower fee reduces what you must borrow, so ask for any discount you might qualify for before you work out the financing. Veteran fee discounts