What is franchise financing?

Franchise financing funds the purchase of a franchise business, covering the franchise fee, build-out costs, equipment, initial inventory, and working capital. SBA 7(a) loans are the most popular financing vehicle for franchises because the SBA maintains a Franchise Registry of pre-approved brands that streamlines the approval process. Many franchisors have preferred lender relationships or in-house financing programs. Down payment requirements vary by lender and brand but typically run 10%–30% of total project cost. Lenders evaluate both the franchisee's personal creditworthiness and the historical performance of the specific franchise brand. Strong franchise systems with proven unit economics are easier to finance.