Franchise finance refers to the range of funding options available to help you purchase and establish a franchise business. This can include loans to cover the initial franchise fee, fit-out and renovation costs, equipment purchases, initial stock, signage, and working capital to support the business during its early months of operation.
Buying a franchise can be an attractive path to business ownership because you benefit from an established brand, proven systems, training and support, and a ready-made customer base. Lenders recognise these advantages, which is why franchise finance can be easier to obtain than funding for a completely new business concept. The established track record of the franchise system provides lenders with greater confidence in the business’s likelihood of success.
Australia has one of the highest rates of franchising per capita in the world, with over 1,200 franchise systems operating across the country. From food and beverage to retail, fitness, cleaning, automotive, and professional services, franchises operate in virtually every industry. The total investment required varies enormously, from under $50,000 for a home-based or mobile franchise to over $1 million for a major fast-food or retail outlet.
Most franchise purchases require a combination of finance products to cover the different components of the investment. Here are the main types of finance used for franchise purchases.
Business loan (secured): A traditional business loan secured against property (residential or commercial) is often the most cost-effective way to fund a franchise purchase. Interest rates are typically lower than unsecured options, and you can borrow larger amounts with longer repayment terms. This is suitable for covering the franchise fee, goodwill, and working capital components.
Business loan (unsecured): If you do not have property to offer as security, unsecured business loans are available from various lenders. These typically come with higher interest rates and shorter terms but do not require real estate collateral. Amounts generally range from $20,000 to $500,000 with terms of 1 to 5 years.
Equipment finance: For franchises that require significant equipment (commercial kitchens, fitness equipment, vehicles, manufacturing machinery), equipment finance or chattel mortgage arrangements allow you to fund these assets separately. The equipment itself serves as security, keeping the loan separate from other components of the franchise purchase.
Commercial property loan: If the franchise includes purchasing or leasing commercial premises, a commercial property loan may be required. These loans are specifically designed for business premises and operate similarly to residential mortgages but with different terms and LVR requirements.
Fit-out finance: Some lenders offer specific fit-out finance for the construction and renovation of franchise premises. This covers items like shop fitting, signage, fixtures, and fittings required to bring the premises up to franchise brand standards.
The total investment for a franchise varies significantly depending on the industry, brand, and location. Here is a breakdown of what you can typically expect across different franchise categories.
| Franchise Type | Typical Investment | Franchise Fee | Fit-Out Costs |
|---|---|---|---|
| Home-based/Mobile | $30,000-$100,000 | $15,000-$50,000 | Minimal |
| Service-based (cleaning, trades) | $50,000-$200,000 | $20,000-$80,000 | $10,000-$50,000 |
| Retail/Café | $150,000-$500,000 | $30,000-$100,000 | $80,000-$300,000 |
| Fast Food/QSR | $300,000-$1,000,000+ | $40,000-$80,000 | $200,000-$700,000 |
| Fitness/Gym | $200,000-$800,000 | $30,000-$100,000 | $100,000-$500,000 |
In addition to the upfront investment, you should budget for ongoing costs including royalty fees (typically 4% to 8% of gross revenue), marketing fund contributions (1% to 3% of revenue), lease payments, staff wages, and general operating expenses. Most finance advisors recommend having at least three to six months of working capital available beyond the purchase price to cover these costs while the business establishes itself.
Michael wanted to purchase a well-known sandwich franchise in a busy Geelong shopping centre. The total investment was $380,000, comprising a $45,000 franchise fee, $240,000 in fit-out costs, $45,000 in equipment, $20,000 in initial stock, and $30,000 in working capital. Michael had $130,000 in savings (34% deposit) and equity in his home. We structured his finance as a $180,000 business loan secured against his home equity at a competitive rate, plus $70,000 in equipment finance secured against the commercial kitchen equipment. This split structure minimised his overall borrowing costs while ensuring he had adequate working capital for the first six months.
Lenders assess franchise finance applications based on several key criteria. Understanding what they look for can help you prepare a stronger application and improve your chances of approval.
The franchise system: Lenders maintain internal lists of franchise brands they are willing to fund. Well-established systems with strong brand recognition, proven profitability, and low failure rates are viewed more favourably. Some lenders have dedicated franchise finance teams who specialise in specific brands and can offer streamlined approval processes.
Your business plan: Even though you are buying into an established system, lenders want to see a well-prepared business plan that demonstrates your understanding of the local market, projected revenue and expenses, break-even analysis, and growth strategy. The franchise disclosure document and any performance data provided by the franchisor can support your projections.
Your financial position: Lenders will assess your personal assets and liabilities, credit history, existing debts, and available deposit. Most franchise lenders require a deposit of 30% to 50% of the total investment. A larger deposit improves your negotiating position and can result in better loan terms.
Your experience: While you do not necessarily need experience in the specific industry, lenders like to see evidence of business acumen, management skills, or relevant work experience. Some franchise systems also have their own experience requirements that must be met before they will grant a franchise agreement.
Step 1: Research and due diligence: Before seeking finance, thoroughly research the franchise opportunity. Review the franchise disclosure document, speak with existing franchisees, understand the total investment required, and assess whether the projected returns justify the investment. This due diligence will also form the foundation of your business plan.
Step 2: Prepare your business plan: Develop a comprehensive business plan that includes market analysis for your proposed location, detailed financial projections for at least three years, your personal financial statement, and a clear explanation of how you will operate and grow the business.
Step 3: Consult a finance broker: A broker experienced in franchise finance can assess your situation, identify the most suitable funding structure, and present your application to lenders most likely to approve it. They can also advise on the optimal split between different finance products to minimise your overall costs.
Step 4: Submit your application: Your broker will prepare and submit your application to the chosen lenders, along with all supporting documentation. For franchise applications, this typically includes the franchise agreement, disclosure document, business plan, personal financial statements, and evidence of your deposit.
Step 5: Approval and settlement: Once approved, your broker will coordinate the settlement process, ensuring funds are available when needed for the franchise fee payment, fit-out commencement, and other costs. This process typically takes four to eight weeks from initial application.
Get your finance pre-approved before signing the franchise agreement. This protects you from committing to a franchise purchase before knowing whether you can secure adequate funding. Most franchise agreements include a cooling-off period and finance clauses, but it is always better to have finance confirmed before making commitments.
Underestimating the total investment: Many first-time franchise buyers focus on the franchise fee and fit-out costs but forget about working capital, marketing contributions, lease deposits, legal fees, and personal living expenses during the establishment phase. Always budget for at least 20% more than the quoted investment amount as a buffer.
Not getting independent legal advice: Franchise agreements are complex legal documents that commit you to significant financial obligations. Always have the agreement reviewed by a lawyer who specialises in franchise law before signing. The cost of legal advice is minimal compared to the risks of entering into an unfavourable agreement.
Relying solely on the franchisor’s financial projections: While franchisors provide financial performance data, these figures may represent the best-performing outlets rather than typical results. Conduct your own market research and speak with multiple existing franchisees to get a realistic picture of potential earnings.
Choosing the cheapest finance option: The lowest interest rate is not always the best overall deal. Consider the total cost including fees, the flexibility of repayment terms, early repayment options, and the lender’s understanding of franchise businesses. A slightly higher rate with more flexible terms may serve you better in the long run.
The finance requirements and structures vary considerably depending on the type of franchise you are purchasing. Here is what to expect for some of the most popular franchise categories in Australia.
Food and beverage franchises: These typically require the largest upfront investment due to expensive commercial kitchen equipment, fit-out to brand specifications, and stringent health and safety compliance. The finance structure usually combines a business loan for the franchise fee and working capital with equipment finance for kitchen and refrigeration equipment. Lenders may require higher deposits for food franchises due to the higher failure rate in the hospitality sector compared to other industries.
Service-based franchises: Cleaning, lawn care, pest control, and other service franchises generally have lower startup costs and simpler finance requirements. Many can be funded with a single unsecured business loan or a combination of a small business loan and vehicle finance. The lower investment amount means deposits are more manageable, making these franchises accessible to a wider range of buyers.
Retail franchises: Retail franchises typically require significant investment in fit-out, signage, and initial stock. Finance structures often include a business loan for the franchise fee, fit-out finance for the shop build, and a stock finance or working capital facility. Location is critical for retail franchises, so lenders will closely scrutinise the proposed site and lease terms.
Fitness franchises: Gym and fitness franchises can require substantial equipment investment including cardio machines, weights, functional training equipment, and technology systems. Equipment finance is usually the primary funding tool, with the gym equipment itself serving as security. Some fitness franchise systems have established lender relationships that can streamline the finance process.
Before committing to any franchise purchase, you will receive a franchise disclosure document from the franchisor. This document is required under the Franchising Code of Conduct and must be provided at least 14 days before you sign the franchise agreement or make any non-refundable payments.
The disclosure document contains critical information including the franchise system’s trading history, details of all fees and charges, financial performance of existing outlets, litigation history, details of any materially relevant facts, and the franchisor’s obligations. Your lender will also review this document as part of their assessment, so having a thorough understanding of its contents will help you answer any questions they may have.
Pay particular attention to the total estimated startup costs section, ongoing fee structure including royalties and marketing contributions, conditions for renewal and termination of the agreement, territory rights and any restrictions on your operations, and the franchisor’s obligations regarding training and support. Any areas of concern should be discussed with your franchise lawyer and finance broker before proceeding.
Financing a franchise often involves multiple finance products from different lenders, each with their own application processes and requirements. A finance broker who understands franchising can coordinate this complex process, saving you time and ensuring you get the optimal finance structure for your situation.
Your broker will assess the total investment, recommend the most cost-effective combination of finance products, identify lenders who are familiar with your chosen franchise system, prepare and submit applications, and manage the process through to settlement. They can also advise on structuring the finance to maximise tax efficiency and protect your personal assets.
At Mortgage & Finance Advisory, we have extensive experience helping aspiring franchise owners across Geelong, Melbourne, and regional Victoria secure the right finance. We work with a wide panel of lenders including those with specialist franchise lending teams, giving you access to competitive rates and flexible terms tailored to franchise purchases.
It is very rare to finance a franchise with zero deposit. Most lenders require a minimum deposit of 30% to 50% of the total investment. However, if you have equity in residential property, this can sometimes be used as security to reduce or eliminate the cash deposit required. Speak with a broker about your specific circumstances.
The approval timeline varies depending on the lender and complexity of the application. Generally, expect four to eight weeks from initial application to funds being available. Having all documentation prepared upfront and working with a broker who has established lender relationships can speed up the process significantly.
Yes, franchise royalties and marketing fund contributions are generally tax-deductible business expenses. The initial franchise fee may also be deductible over the term of the franchise agreement. However, tax treatment can vary depending on the structure of the payments, so always consult with your accountant for advice specific to your situation.
Yes, buying an existing franchise (known as a resale) can actually be easier to finance than a new franchise because the business has an established trading history, financial records, and proven revenue. Lenders can assess actual performance rather than relying on projections. Resales can also be less risky for buyers as the business is already operational with existing customers and staff.
Our experienced brokers compare options across 60+ lenders to find the right solution for your situation.
Director & Senior Finance Broker
With years of experience in mortgage broking and finance, Melanie helps clients across Geelong, the Surf Coast, Melbourne and regional Victoria navigate the complexities of home loans and business finance. Contact our team on 03 9020 2699.
