Almost no one buys a franchise with cash. Understanding how the financing works — and what it does to your monthly math — is as important as picking the brand. Here's the honest version.
The SBA 7(a) loan is the default
The most common path is a Small Business Administration (SBA) 7(a) loan. The SBA doesn't lend directly; it guarantees a portion of a bank's loan, which lowers the bank's risk and makes it easier to fund a first-time owner. Franchises get a boost here: if a brand is listed in the SBA Franchise Directory, the paperwork is faster. Terms typically run up to 10 years for equipment and working capital (longer if real estate is involved), with rates that float a few points over prime.
Expect to put real money down
SBA lenders generally want the borrower to inject 10–30% of the total project cost as equity — your own cash, not borrowed. On a $500,000 build, that's $50,000–$150,000 before you open the doors. Lenders also want to see liquidity left over afterward; being cash-poor on day one is how new units fail.
What the lender is actually underwriting
A good lender reads the same FDD you should. They'll look at:
- Item 7 to size the loan against the real cost to open.
- Item 19 — and its absence. A brand with no earnings disclosure is harder to underwrite, and some lenders shy away from it.
- Item 20 turnover, because a high closure rate is a default-risk signal to them, too.
- Your personal credit, industry experience, and the strength of the specific location.
The costs the financing pitch leaves out
Two things routinely surprise new franchisees. First, the loan payment is a fixed cost that doesn't care about your sales. On a $400,000 loan at ~10.5% over 10 years, that's roughly $5,400 a month, every month, from opening day. Second, that payment sits on top of the ongoing royalty and ad-fund fees from Item 6 — which is why a store can post solid revenue and still leave the owner with thin cash flow. Our affordability calculator puts debt service and franchise fees in the same picture so you can see what's actually left.
Financing doesn't make an expensive franchise affordable — it spreads the cost and adds a fixed monthly bill on top of the fees.
Other paths
Beyond SBA loans, franchisees use home-equity lines, 401(k) rollover plans (ROBS — powerful but risky, since you're staking retirement savings), and occasional franchisor-affiliated financing. Each has trade-offs worth reviewing with an accountant. Whatever the source, the discipline is the same: know the full Item 7 cost, model the payment against a conservative revenue estimate, and confirm you still clear a real income after fees and debt.
Start by comparing what brands actually cost, then run the financed math before you commit.