Securing Your First Franchise Loan: What Aspiring Owners Should Know

June 6, 2025

Buying a franchise offers an appealing path to business ownership. You gain a proven model, brand recognition, and operational support — but one major hurdle stands in the way for most new franchisees: financing.

Securing your first franchise loan can feel overwhelming. The process is often different from getting a personal loan or even a general business loan. It requires preparation, understanding of different financing options, and the ability to present yourself as a credible borrower.

If you’re considering taking the leap into franchise ownership, this guide will help you understand what you need to know to secure funding and set your venture up for success.

Why Franchise Loans Are Different From Other Business Loans

Franchise loans can involve unique dynamics that traditional small business funding or startup business funding may not fully address. Here’s why:

You are purchasing the right to operate under an existing brand, which often includes paying an upfront franchise fee and ongoing royalties.
Many franchisors require specific equipment, store layouts, or operational guidelines that must be financed.
Lenders will assess not only your financial standing but also the strength of the franchise system you are joining.
Your franchise agreement can affect your collateral and cash flow, influencing loan terms.

Understanding these nuances will help you navigate the process more effectively.

How Much Do You Need to Borrow?

Your first step is to calculate how much funding you need. The total investment typically includes:

Franchise fee
Leasehold improvements
Equipment and inventory
Marketing costs for the grand opening
Working capital to cover the first several months of operations

Be realistic. It’s better to slightly overestimate and have a financial buffer than to fall short.

You’ll also need to be prepared to invest personal capital. Most lenders require franchisees to contribute 15% to 30% of the total investment from their own funds to demonstrate commitment.

Franchise Loan Options to Consider

SBA Loans

Small Business Administration (SBA) loans are a popular choice for franchisees. The SBA guarantees a portion of the loan, which reduces risk for lenders and helps borrowers secure better terms.

SBA 7(a) loans are most commonly used for franchise financing. They can be used for:

Real estate
Equipment
Working capital
Franchise fees

Keep in mind that SBA loans require substantial documentation and can take longer to process.

Conventional Bank Loans

Banks and credit unions also offer commercial business loans for franchise financing. Approval may depend on:

Your creditworthiness
The franchise brand’s track record
Collateral offered

Terms vary widely by lender and franchise system.

Equipment Financing

If much of your startup cost involves equipment — for example, for a fitness studio, restaurant, or healthcare practice — healthcare business loans and equipment financing can be an efficient option.

This type of loan allows you to fund equipment separately, preserving working capital for other needs.

Specialty Franchise Financing Programs

Some lenders specialize in franchise loans and maintain relationships with certain franchise brands. They may offer:

Streamlined approvals for pre-approved franchise systems
Flexible loan structures
Faster closing times

Franchise-specific lenders understand the franchise model, which can work in your favor.

How to Prepare for a Franchise Loan Application

Lenders want to see that you’re a capable operator with a sound financial footing. Here’s what you’ll typically need to provide:

1. Personal Financial Statement

Lenders will review your:

Personal assets and liabilities
Credit score
Net worth

A strong personal financial profile increases your chances of approval.

2. Business Plan

Even though you’re buying into a franchise, you need to show that you understand your local market and have a plan for success.

Your business plan should include:

Market analysis
Sales and revenue projections
Marketing strategy
Management structure

3. Franchise Disclosure Document (FDD)

The FDD outlines the franchise’s financial performance and legal structure. Lenders will scrutinize this to assess the viability of the franchise.

4. Franchise Agreement

Your agreement with the franchisor affects cash flow, fees, and financial obligations — all critical to your lender’s risk analysis.

5. Collateral and Down Payment

Expect to offer collateral such as:

Personal real estate
Equipment being financed
Business assets

You’ll also need proof of your personal investment toward the total project cost.

Common Challenges First-Time Franchise Owners Face — And How to Address Them

Limited Business Credit

Many first-time owners lack established business credit. You can address this by showing a strong personal credit profile and partnering with lenders who understand startup franchises.

Insufficient Collateral

If you have limited personal assets, consider equipment financing or real estate funding to structure the loan creatively.

Inadequate Planning

A vague or incomplete business plan is a common reason franchise loans are declined. Investing time in a thorough, data-driven business plan can significantly improve your odds.

Where to Find Franchise Loan Support

Working with the right lender can make or break your financing experience.

Prosper Business Credit offers solutions beyond traditional loans, including:

By working with a lender experienced in franchise finance, you can navigate the process more smoothly and access tailored options.

Final Thoughts: Setting Yourself Up for Long-Term Success

Securing your first franchise loan is a major milestone — and often a complex one. Preparation, understanding your options, and choosing the right partners can make a meaningful difference.

As you pursue this opportunity, focus on building credibility with lenders, crafting a solid business plan, and selecting a franchise that aligns with your goals and financial capacity.

Whether you’re launching a fitness studio, restaurant, legal service, or wellness center like our own Shiatsu Massage Center focuses on healing and performance, the right financing can provide the foundation for sustainable growth.

Take the time to get it right — and you’ll enter your new franchise with both confidence and financial stability.