Franchise finance: funding your way into a franchise system

A franchise offers a shortcut: a known brand, a tested system, training, supplier relationships and a playbook. For many first-time owners, it’s a way to run their own business without inventing everything from scratch. But the upfront investment can be substantial, and how you fund it shapes how comfortably you’ll trade in the early years.

What does buying a franchise cost?

Whether you’re opening a new outlet or buying an existing one, the costs stack up:

Cost	New outlet	Resale
Franchise fee	Yes	Sometimes a transfer fee instead
Purchase price (goodwill, assets)	—	Yes
Fit-out to brand standards	Yes	Sometimes a refurbishment is required
Equipment	Yes	Usually included in price
Opening stock	Yes	Stock at valuation
Training and travel	Often	Often
Legal and accounting advice	Yes	Yes
Working capital for the first months	Yes	Yes
Ongoing royalties and marketing levies	Yes	Yes

The ongoing fees aren’t a one-off funding need, but they matter: they come out of every week’s takings, so your forecast must allow for them before you decide how much to borrow.

How do lenders view franchise applications?

Lenders weigh several things:

• The system — how long it’s operated, how many outlets, how many have closed or changed hands
• The franchisor’s figures — average outlet performance, though lenders will treat these with care
• The site — location, lease terms, local competition
• You — experience in the industry or in running a business, and your contribution
• For resales — the outlet’s actual bank statements, BAS and financials

A strong system doesn’t guarantee approval, but it gives a lender evidence that a newly opened site in that system has a reasonable chance — evidence an independent start-up can’t provide.

The Franchising Code timeline

The ACCC explains that a franchisor must give prospective franchisees the disclosure document and franchise agreement at least 14 days before entering a franchise agreement, and that there’s a mandatory 14-day waiting period after you receive the documents in their final form, during which you can’t sign. Use that time well:

1. Read the disclosure document carefully, including the franchisor’s financial details.
2. Speak to current and former franchisees.
3. Have a lawyer and accountant review the agreement and figures.
4. Talk to us about funding, so you know what’s achievable before you commit.

Business.gov.au’s guidance on buying a franchise links to the ACCC’s material on these steps.

Using your 14 days to sort the money? Start a 60-second enquiry and a specialist will tell you what’s realistic — no credit check to enquire.

Typical funding structures

New outlet: owner contribution, equipment finance for kitchen or shop equipment, and a property-secured loan for the fit-out, fee and working capital if you or a director own property. Without property, the funding mix leans harder on your own contribution and equipment finance — much like opening any new business.

Resale: assessed much like buying an established business. The outlet’s own trading history carries more weight than the system averages, and property security usually funds the goodwill portion.

Illustrative example: A couple buy into a food franchise with a proven system. The franchisor requires a brand-standard fit-out and a set equipment package. They contribute savings for the franchise fee and working capital, the equipment package goes on equipment finance, and the fit-out is funded with a loan secured against their investment property. Their forecast includes royalties and the marketing levy from week one.

Build a forecast that includes everything

A franchise forecast must include royalties, marketing levies, technology fees and any required refurbishment cycles. Use conservative sales assumptions — a new outlet may take time to reach the system average. Our page on cash flow forecasting shows how to lay one out.

Questions to ask before you commit

• What will the outlet need to turn over to cover all costs, including ongoing fees and loan repayments?
• How long did other new outlets take to reach that level?
• What happens at the end of the franchise term?
• Are you required to refurbish during the term, and at what cost?
• Who approves a future sale of your outlet?

New outlet or resale: which is easier to fund?

Each has its strengths. A resale comes with real trading figures, so a lender can see exactly what the outlet earns — but you’re paying for goodwill, which usually needs property security behind it. A new outlet has no goodwill to pay for, but the forecast is just that: a forecast, supported by the system’s averages rather than the site’s own results.

As a rough guide, owners with property and limited industry experience often find resales easier to fund, because the numbers speak for themselves. Owners with strong industry backgrounds sometimes prefer new outlets, where their experience helps make the case. Either way, getting a view on funding before you commit to a particular outlet saves time and disappointment.

Fund your franchise properly

Tell us which system, whether it’s a new outlet or a resale, the total cost and what you can put in. A real person will help you plan a structure that leaves room for the fees and the first slow months. Enquiring involves no credit check, your enquiry isn’t sent around to a crowd of lenders, and the more precise your answers, the better we can match you on the first call. See if your franchise purchase qualifies.