Business acquisition finance · Franchises
Business acquisition finance for franchises
Franchise finance is lending to franchisees, funding the initial franchise fee, fit-out and equipment package for a new site, resales of existing franchises, and multi-site expansion within a system.
How business acquisition finance works for franchises
Buying an existing franchise on resale is often a better proposition than a greenfield site: there is trading history to assess, no ramp-up period, and an established customer base. Lenders will fund a proportion of the purchase price against that history plus the system’s data, subject to franchisor approval of the transfer. Check the remaining term on both the franchise agreement and the lease, and whether a refit is due — an imminent mandatory refurbishment is a cost the price should reflect.
The cash-flow pattern we plan around
A single large set-up cost before opening, then trade that ramps over six to twelve months while royalties, marketing levies and rent apply from day one.
What franchises typically fund
- Initial franchise fee and training costs
- Fit-out to franchisor specification
- Standard equipment package and opening stock
- Buying an existing franchise on resale
- Adding a second or third site
Business acquisition finance for franchises: the numbers
| Typical amounts | $100,000 – $10,000,000 |
|---|---|
| Term | 24–120 months |
| Indicative rates | 7.5% – 16% p.a. |
| Repayments | Monthly |
| Speed | 3–8 weeks |
| Documents franchises usually need | Franchise agreement and disclosure document · ABN, personal financial position and asset and liability statement · Franchisor build cost schedule or contract of sale for a resale |
Rates are indicative, change without notice and depend on the lender, product, asset, term and your credit profile at the time of application. They are not an offer of finance. Comparison rates, where shown, are true only for the example given.
Key terms
Franchise finance
Franchise finance is lending to a franchisee to fund the initial fee, fit-out, equipment and working capital of a franchised business, assessed against the franchise system’s performance data as well as the individual applicant.
Lender accreditation of a franchise system
Lender accreditation of a franchise system is a pre-assessment in which a lender reviews a franchisor’s model, agreement and site performance, allowing franchisees within that system to borrow on pre-agreed terms.
What is business acquisition finance?
Business acquisition finance is a loan used to fund the purchase of an existing business or a shareholding in one. Lenders assess the target business’s adjusted earnings, the assets included in the sale, the buyer’s deposit and any security offered.
How much deposit do you need to buy a business?
Most lenders expect the buyer to contribute 30–50% of the purchase price in cash or equity. Where the buyer offers property security, the required cash contribution can fall substantially.
What is vendor finance in a business sale?
Vendor finance is where the seller leaves part of the purchase price outstanding, repaid by the buyer over an agreed period. It bridges the gap between the price and what a lender will fund, and signals the vendor’s confidence in the business.
What is normalised EBITDA?
Normalised EBITDA is a business’s earnings before interest, tax, depreciation and amortisation, adjusted to remove owner-specific items such as above-market director wages, personal expenses and one-off costs. Lenders use it to estimate what the business will actually earn under new ownership.
Questions from franchises
How is a new franchise site financed?
Franchise finance funds the initial fee, fit-out, equipment and working capital for a new site, with many lenders holding accredited franchise systems that qualify for higher loan-to-value ratios and lighter documentation because the brand’s trading history is known. The franchisor’s disclosure document and site approval are the key documents.
Can I finance buying an existing franchise?
Yes. Franchise resales are financed against the site’s trading history, goodwill and equipment, often at a high proportion of the price for accredited systems. Lenders look at the site’s financials, the lease, the franchisor’s consent and the buyer’s experience.
How do franchisees fund the ramp-up period?
A working capital component is built into the franchise loan or a line of credit covers royalties, rent and wages while trade builds over the first six to twelve months. Lenders expect this and size the facility from the franchisor’s typical ramp-up figures.
Can a first-time franchisee get finance?
Yes. First-time franchisees are financed on the strength of the system, a deposit of typically 20 to 40 per cent, a clean credit file and relevant experience, and accredited systems make approval easier. Lyft Money knows which lenders accredit which franchise brands.