How to Buy a Franchise: Financing Options, Costs, and What to Expect

Buying a franchise can be one of the more accessible ways to become a business owner, you get a proven brand, an operating playbook, and a support system instead of starting from a blank page. But “accessible” doesn’t mean cheap. Between franchise fees, build-out costs, equipment, and working capital, most buyers need real capital and a financing plan before they sign anything. Here’s a practical breakdown of what it costs, how people actually pay for it, and where an SBA loan fits in.

How much money do you actually need?

The number people usually hear first, the franchise fee, is almost never the full story. That fee (typically $20,000–$60,000) buys you the license to use the brand and system. The real cost is the total initial investment, which also includes:

• Real estate or lease build-out
• Equipment and signage
• Initial inventory
• Training and travel
• Working capital (usually 3–12 months of operating cushion)

This full figure is disclosed in Item 7 of the Franchise Disclosure Document (FDD) the single most reliable source for what a specific brand actually costs, and one the FTC requires every franchisor to give you before you sign anything.

Rough ranges by category in 2026:

• Home-based or mobile service franchises: $10,000–$100,000
• Retail and typical service-based franchises: $150,000–$500,000
• Full-service restaurants and hotels: $1 million–$4 million+

Most lenders and franchisors want to see you contribute 10–30% of the total project cost in cash equity, with the rest financed. On top of that, plan for a separate cash reserve for living expenses for the first 12–18 months, since most new locations take time to become profitable.

Financing option 1: SBA loans

SBA-backed loans are the most common way franchise buyers finance their purchase, and for good reason: lower down payments and longer repayment terms than most conventional loans. The two main programs franchise buyers use are:

• SBA 7(a) loans — the flagship program, usable for the franchise fee, build-out, equipment, working capital, or even refinancing. Loan amounts go up to $5 million.
• SBA 504 loans — better suited if you’re buying commercial real estate or making a large equipment investment; can finance up to 90% of project cost through a Certified Development Company paired with a private lender.

A few things worth knowing before you go this route:

• Your brand needs to be on the SBA Franchise Directory. The SBA reintroduced this centralized directory in 2025, and a franchisor must be listed before their franchisees can access SBA-backed financing. If the brand you’re eyeing isn’t listed, ask them directly whether they plan to be.
• Expect an equity injection of around 10% of project costs for most acquisitions, though this varies by lender and deal size.
• Lenders generally want to see a personal credit score of 680+ for the most competitive rates, though some programs work with scores in the 620–640 range if you have compensating factors like more collateral or a larger down payment.
• Rates move with the market. SBA 7(a) rates are capped relative to the prime rate, and 2026 has seen variable rates run as high as 9.75% and fixed rates near 11.75% on larger loans, so shop more than one lender.
• Be ready to show tax returns, financial statements, a debt schedule, and a business plan this is fairly standard across SBA lenders regardless of size.

The tradeoff: SBA loans are thorough. Approval isn’t instant, and the documentation requirements are real. If you’re in a hurry to close, this may not be your fastest path, but it’s often the cheapest capital available to a first-time franchise buyer.

Other financing options worth comparing

SBA loans aren’t the only route, and depending on your situation, they may not even be the best one.
• Conventional franchise loans (from specialty lenders like ApplePie Capital) usually faster to close and offer fixed rates, but typically require a higher down payment (15–20%) than SBA loans.
• ROBS (Rollover for Business Startups) — lets you use funds from an existing 401(k) or IRA to invest in your franchise without early withdrawal penalties or taking on debt. It’s a legitimate structure, but it comes with compliance requirements and puts your retirement savings directly at risk if the business struggles.
• HELOCs (Home Equity Lines of Credit) — tapping equity in your home can be a lower-cost source of capital, but it puts your house on the line as collateral.
• Partners or investors — bringing in a partner splits both the capital burden and the equity, which can lower your personal risk but also means sharing decision-making and profits.
• Seller or franchisor financing — some franchisors offer development incentives, reduced fees for veterans, or interest-free loans for buyers committing to multiple units. Always ask what’s available directly.

So, should you go the SBA route?

If you want the lowest possible down payment, competitive rates, and don’t mind a more thorough application process, SBA financing is usually the strongest starting point, it’s why it remains the most common financing product for franchise buyers. If speed matters more than rate, or you don’t want to lock in a lender-heavy documentation process, a conventional franchise lender may get you to closing faster, just at a higher down payment.

For many buyers, the real answer is a blend: SBA or conventional debt to cover the bulk of the project, personal savings or a partner to cover the equity injection, and a separate reserve set aside for living expenses while the business ramps up.

Before you sign anything

Whichever financing path you choose, do these first:

1. Read Item 7, 19, 20, and 21 of the FDD carefully — investment range, financial performance representations, franchisee turnover, and audited financials.
2. Talk to current and former franchisees, not just the ones the franchisor introduces you to.
3. Get pre-qualified with a lender early so you know your real budget before you fall in love with a brand you can’t afford.
4. Have a franchise attorney review the franchise agreement before you sign the FDD is disclosure, not negotiation, and terms can often be discussed.

Buying a franchise is a real business decision, not just a purchase. The financing structure you choose will shape your monthly obligations and your risk for years, so it’s worth spending as much time comparing lenders as you spend comparing brands.

This post is for general informational purposes and isn’t financial or legal advice. Talk to a lender, accountant, and franchise attorney about your specific situation before committing to a purchase.