Franchises let you run your own business using an established company’s brand, products and systems.
They’re a major part of business in Australia, with the sector spanning over 94,000 individual outlets and employing almost 600,000 people.
It’s a popular way to get into business ownership, but buying in isn’t cheap. A franchise loan can help cover the upfront cost of getting started.
What is a franchise loan?
A franchise loan is a type of business loan designed to help you buy or set up a franchise outlet. It can be used to cover the upfront franchise fee, fit-out costs, equipment, stock and working capital to get things running.
Buying into a franchise usually costs more upfront than starting an independent business, since you’re paying for the brand, training and ongoing support on top of your own setup costs.
However, because you’re buying into an established brand with a proven business model, lenders often see franchise businesses as less risky than startups. That can work in your favour, with franchise loans often offering a smoother approval process and potentially better rates or terms.
What are my franchise loan options?
A franchise loan isn’t a single, standalone product. It’s usually one of the standard business loan types below, chosen and structured to suit your financial position and the terms of your franchise agreement.
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Secured business loan
A secured business loan is backed by a valuable asset, such as your home, an investment property or, in some cases, the franchise itself. Offering security can help you borrow larger amounts and qualify for lower interest rates. However, if you default on the loan, the asset – including your franchise – could be at risk.
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Unsecured business loan
With an unsecured business loan, you don’t need to provide any collateral. That reduces your risk, but increases the lender’s, so you’ll usually face higher interest rates and may be offered a lower borrowing limit.
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Low doc business loan
If you don’t have the full financial paperwork required for a standard business loan like recent tax returns or financial statements, a low doc business loan may be an option. These loans typically come with higher interest rates and stricter conditions, and you may not be able to borrow as much.
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Bad credit business loan
If your credit score is less than ideal, a bad credit business loan could help you get access the funds you need. While approval can be more challenging, and rates tend to be higher, these loans can give you access to the funds you need if other options aren’t available.
How are franchise loans different from regular business loans?
While franchise loans use the same types of finance as other business purchases, the franchise model brings its own set of advantages and limitations that can affect how your loan is assessed, approved and structured.
Here’s how financing a franchise compares to funding other types of businesses:
| Feature | Franchise loan | Standard business loan |
|---|---|---|
| Business model | Backed by a proven brand with an existing system | Independent business with variable risk and no brand recognition |
| Perceived risk | Lower risk for lenders due to brand and track record | Higher risk, especially for new or unknown businesses |
| Loan-to-value ratio | Often 50–70%, sometimes up to 100% with strong security | A minimum 30% deposit is often required unless the business is well-established |
| Loan terms | May be tied to franchise agreement or lease term (e.g. 5–10 years) | Can be longer or more flexible depending on business and assets |
| Franchise restrictions | May only be available for approved franchise brands | No brand restrictions |
| Additional costs | Establishment fees, royalties, ongoing franchise fees, training costs | Fewer brand-related ongoing costs, but may include setup and licensing fees |
| Lender assessment | Based on both your financials and the franchise’s performance/reputation | Based primarily on your financials and business plan |
Why apply for a business loan with Savvy?
What types of franchises can I buy with a business loan?
Franchises come in all shapes and sizes, from global giants like Subway, McDonald’s and KFC, to large Australian brands like Jim’s Group and Boost, all the way to smaller local businesses, spanning industries such as fast food, health and fitness, beauty and retail.
When it comes to buying a franchise, there are generally two paths you can take:
- Buying an established franchise
- Setting up a new franchise location
Buying an established franchise often makes lenders more comfortable because the business has a financial track record. In this case, lenders will usually want to review the business’s financials, such as tax returns, profit and loss statements, and bank records from the past two to three years. This helps them assess the ongoing viability and risks of the business.
Setting up a new franchise works a little differently. Since there’s no existing financial history, lenders focus more on the strength of your business plan, your projected cash flow and your personal experience. The better your plan and background, the more confident a lender can be in your ability to make the franchise succeed. However, because new franchises carry more uncertainty, loans may come with higher interest rates or lower borrowing limits compared to established franchises.
How much can I borrow to buy a franchise?
Franchise costs vary widely depending on the brand, size and whether you’re buying into an existing outlet or starting fresh. Some smaller franchises can cost as little as a few thousand dollars, while larger, more complex operations may cost hundreds of thousands of dollars or more. For example, buying into a Jim’s Mowing franchise typically requires an investment of $20,000 to $50,000, while a McDonald’s franchise can cost between $4 and $12 million, with an initial investment of at least $1.5 million in unencumbered funds.
You’ll also need to factor in the extra costs that come with buying a franchise such as establishment fees, royalties, equipment, stock and fit-out costs, and staff training fees.
How much you can borrow depends on your lender, your financial position and whether you’re offering any security. As a guide, you can generally get:
- 50% to 70% of the value of an existing franchise
- Up to 65% for new franchise locations
- Up to 100%, in some cases, if you offer residential or commercial property as security
In most cases, lenders will expect you to contribute a deposit of 30% to 50%, particularly for unsecured loans or new franchise setups.
Below are examples of what different franchise loans might look like for a small, medium and large business, based on borrowing 50% of the franchise cost.
| Business size | Franchise cost | Loan | Loan type | Loan term | Interest rate | Monthly repayment |
|---|---|---|---|---|---|---|
| Large | $4 million | $2 million | Secured business loan | 20 years | 6% p.a. | $14,329 |
| Medium | $225,000 | $112,500 | Secured business loan | 10 years | 7.5% p.a. | $1,335 |
| Small | $20,000 | $10,000 | Unsecured business loan | 5 years | 12% p.a. | $193 |
| Examples are illustrative only and don’t represent actual loan offers. Repayments are based on the loan amount, term and interest rate shown and exclude fees, charges and other costs. Actual rates, loan terms and repayments will depend on the lender, your business and your individual circumstances. Interest costs on business loans may be tax-deductible. | ||||||
What to consider before buying a franchise
Before you commit, it’s important to thoroughly review the franchise opportunity. This includes checking the franchisor’s financial health, visiting the premises, speaking with other franchisees to understand their experiences and understanding all fees involved.
In Australia, franchising is also governed by the Franchising Code of Conduct, which outlines the rights and responsibilities of both franchisors and franchisees. It’s enforced by the Australian Competition and Consumer Commission (ACCC) and is designed to ensure transparency and fairness throughout the franchising relationship – so it’s worth getting familiar with the Code before signing any agreement.
Pros and cons of buying a franchise
Pros
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Established brand
With a franchise, you’re purchasing a brand that’s already well recognised and often very popular. You don’t need to build brand awareness, as you already start with it.
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Wide customer base
The brand you’re buying into doesn’t have to be a local name. Franchises can be popular nationwide, so your market extends well beyond locals who already know you. Visitors from other regions or even other states will recognise and trust your brand on sight.
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Marketing and advertising
With a franchise, the majority of the marketing is already done for you, often including things like television campaigns that might be well out of reach for an independent business. These marketing costs are usually included as part of the franchise fee, so you can get a lot of value for money from the investment.
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Staff training
Generally the franchise will have its own training program for staff, which is often handled by the central office. On top of this, if key staff leave, it’s usually less disruptive because franchises have standardised training programs. You may even be able to recruit experienced staff from other franchise outlets who already know how the business operates.
Cons
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Less control
Many people buying a business do so hoping to build something uniquely theirs, or see some idea realised. With a franchise, you’re working with someone else’s vision so may not have much control how the store runs or what you’re selling.
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Substantial franchise fees
Franchise fees can be high, often tens of thousands of dollars annually or more, and they’re an ongoing cost you can’t scale back when things are tight.
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Detailed requirements
Franchise businesses tend to have very strictly defined models of how they’re set up and how they operate. There’s a lot of work involved in understanding these requirements and making sure customers get the experience they expect every time.
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Single business model
Once you’ve bought in, you’re generally locked into running things exactly as designed, with little room to put your own spin on it. If that approach doesn’t suit your particular market or circumstances, you won’t have much flexibility to adapt.
How to apply for a franchise loan with Savvy
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Find your franchise
Research your options then agree on a price with the franchisor or seller.
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Apply through Savvy
We’ll review your application and match you with a suitable lender.
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Prepare your documents
Have your ID, ABN, business financials and plan ready before applying.
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Submit your application
We’ll lodge your application with the lender and guide you through approval.
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Sign and settle
We’ll handle settlement and your funds will be released!
