Franchise Loans and Financing: Best Options for Franchise Owners (2026)

Franchise Financing: How To Pay for Your Business

The cost of franchising can vary pretty wildly. In general, you've got to cover real estate, build-out, equipment, inventory, franchise fees, and royalties. It usually requires investments of $50,000 to more than $2 million, depending on the brand.

Franchise financing is a term I use in the lending industry to describe money that's borrowed by a franchisee to cover those opening and operating costs.

The distinction between this and borrowing for more general small business financing is in the underwriting process. In franchise financing, lenders have to evaluate the credit, revenue, and time in business of not just the borrower, but also the franchise brand itself, including its operating history, system success rate, and other details. In other words, a strong brand can offset a mediocre borrower, but a weaker brand can sink a strong borrower's application.

Several different loan and financing types can fit under the umbrella of franchise financing, and a lot of borrowers blend two or more together to fit their needs. There are five options I see utilized a lot for franchisees in particular:

• Small Business Administration (SBA) loans

• Conventiona bank loans

• Alternative and online lenders

• Franchisor in-house financing

• ROBS (rollover for business startups)

Here's an idea of what each of the options cost, how quickly you can secure them, and what they're best suited for:

SBA Loans: A Top Option for Franchises

The Small Business Administration (SBA) is a government agency that helps expand loan access to small businesses around the country. An SBA loan is financing that's backed by the agency, but not directly issued by it. Instead, they're distributed by SBA partner lending institutions, which can include banks, credit unions, or other nonbank lenders.

There are several SBA loan programs, but they all generally operate on a guaranty system. Basically, that means that the SBA promises its partner lenders to pay them back a certain percentage of loans if they default. That support allows lenders to open up financing to businesses that might not otherwise qualify because of factors like a low credit score, weak collateral, a thin balance sheet, or little time in business. It also tends to mean these loans have good rates and longer terms.

SBA loans are the most common franchise financing option, and the one I'd recommend most if you can qualify. In fact, SBA franchise loans make up about 10% of total SBA loan volume. (If you're curious, the most-funded franchises by SBA loan count are Subway, Quiznos, Dairy Queen, Anytime Fitness, and Domino's.)

The SBA Franchise Directory

Before I get into which types of SBA loans I recommend for franchisees, you first need to know about the SBA Franchise Directory.

It's the official list of franchise brands that are eligible for SBA loans, which get used by SBA-approved lenders. It was first launched in 2018, got discontinued in 2023, was recently reinstated in June of 2025. If your brand isn't on the list, you can't get an SBA loan. The only way around that is to get your franchisor to apply for directory inclusion (which is something only they can do, not the borrower).

A company can move on or off the directory so, before pursuing an SBA loan, look to see if your franchise brand is on the most current list on SBA.gov. At the same time, just because a franchise is on the list, doesn't mean it's guaranteed success (and vice versa).

Now, if your brand is on the list, there are two SBA loans I'd specifically recommend you consider:

SBA 7(a) Loans

The SBA 7(A) Loan is the SBA's flagship program. They're flexible in terms of what they can be used for: franchise fees, build-out, equipment, working capital, real estate, and existing-franchise acquisition.

These loans can go up to as much as $5 million and typically require 10% down for franchise acquisition. For 7(a) loans that are under $150,000, the SBA guaranties 85%. For loans over $150,000, the SBA guaranties 75%.

• Term: Up to 10 years, unless used for certain equipment or real estate, in which case it can be a maximum of 25 years

• Rate: 9.75% to 13.25%. It's the current prime rate (which as of May 2026 is 6.75%) + a scaling percentage from 3% to 6.5%, depending on the loan amount. (See loan terms for more details.)

• Approval Time: 45 to 90 days

SBA 504 Loans

SBA 504 loans are long-term, fixed-rate loans meant to be used for major fixed assets (think real estate, development projects, and long-life machinery). They're issued through localized SBA partner organizations called Certified Development Companies (CDCs) and can go up to as much as $5.5 million.

SBA 504 loans are typically structured in three parts: a private lender finances up to 50% of the project, a CDC finances up to 40% through an SBA-backed debenture, and the borrower contributes at least 10% equity.

• Term: 10, 20, or 25 years

• Rate: Typically 5%-7% (it's pegged to the current market rate for 10-year U.S. Treasury issues + about 3% in fees/spreads)

• Approval Time: 45 to 90 days

Conventional Bank Loans for Franchisees

A traditional or conventional loan is financing provided by banks, credit unions, or online lenders without any government-assisted guaranty. The lender evaluates the borrower's credit, revenue (or projections for new franchisees), and the franchise brand's track record.

In these loans, the lender holds 100% of the risk of the loan, which usually makes qualifying more difficult than it is for SBA-backed loans. Still, it's a good option if your franchise isn't on the SBA Directory. Term loans, fixed-rate loans, and commercial real estate loans are some common examples of conventional bank loans.

Conventional bank loans
Qualifications	680+ personal credit typical 2+ years in business preferred (for refinancing or expanding existing franchises) Strong personal financial statement Clear use of funds tied to the franchise in franchise disclosure documents (FDD)
Approval time	2 to 6 weeks at most banks (longer if the bank requires extensive franchise system due diligence)
Rate range	7% to 12% APR for prime borrowers (bank term loans price at prime + 1% to 5% above the May 26, 2026, prime rate of 6.75%)
Down payment	Typically 20% to 40% for new franchise build-outs; can be lower for refinancing an existing franchise
Best fit	Franchisees with strong credit and an existing banking relationship Franchisees of brands not on the SBA Franchise Directory Large projects where the SBA's 30-90 day timeline doesn't work

Working With Alternative and Online Lenders for Franchise Financing

Besides SBA-backed lenders and the traditional financial institutions, there's a third category of lenders franchisees can turn to for financing options: alternative and online lenders.

These types of lenders underwrite faster than banks and SBA-backed lenders by relying on automated (typically digital) decisions from bank-statement data, business credit scores, and personal credit. They're usually much more flexible in the types of borrower profiles they approve for financing, but borrowing from them usually is more expensive in the long term. They typically offer loan options including short-term loans, lines of credit, equipment financing, invoice factoring, and merchant cash advances.

Alternative and online loans
Qualifications	550 to 600+ personal credit at most online lenders 6+ months in business $10,000+ monthly revenue typical
Approval time	Can be as fast as same day for MCAs and some short-term loans 24 to 72 hours for term loans and lines of credit Up to a week for equipment financing
Rate range	6% to 30%+ APR depending on product and borrower profile (but the faster underwriting comes with a meaningful rate premium over SBA and bank loans)
Down payment	Varies by product. Some working capital products require no down payment, while startup or build-out financing may require borrower equity.
Best fit	Working capital and equipment financing for existing franchisees Bridge financing while waiting on an SBA loan Franchisees of brands not on the SBA Franchise Directory Borrowers whose credit is below the SBA / bank threshold

How Franchisees Should Compare Requirements for SBA loans, Bank Loans, and Alternative Lenders

When I talk to prospective franchise owners about these three financing paths, it's helpful to compare the eligibility requirements directly so they can understand what each path would realistically look like and which one may fit their needs best. This is how I like to walk them through it:

Three Alternative Paths: Franchisor Financing, ROBS, and Home Equity

There are three other non-loan paths I see franchisees use pretty commonly for financing: getting financial support through their franchisor, doing a rollover for business startups (ROBS), or tapping financing tied to their home equity.

Getting Financing From Your Franchisor

Some franchisors offer certain financing programs to their franchisees directly, either via in-house agreements or by partnering with specific lenders.

These are often faster and easier to qualify for than SBA or bank financing, but may come with strict compliance rules (for example, the franchisor requiring early repayment if the franchisee violates brand standards at any point).

Some common offerings include deferring franchise fees (which lets franchisees pay the fee over time instead of up front) and reducing initial royalty rates (for example, for franchisee's first 12 months in business). Other programs might offer equipment leases or financing for development costs tied directly to the brand.

Offers can vary from year to year, and can change depending on how much the company wants to incentivize new openings at that particular time. Some of the top franchisors that offer in-house financing programs have historically included 7-Eleven, Gold's Gym, and Marriott / Hilton hotels.

ROBS

ROBS stands for “rollover for business startups.” It's basically when you move your retirement funds so you can use them to start a new business. It works like this: You form a C-corp, and the C-corp sponsors a new 401(k) plan. You “roll over” your existing retirement account into the new one, then use the new 401(k) to buy stock in the C-corp. Now the C-corp has investment, and uses the cash for the franchise costs.

Most ROBS structures are administered by specialized ROBS providers, and the setup fees typically run $4,000 to $5,000 (not including ongoing administration costs).

The pros to a ROBS are that you don't pay interest, there's no monthly debt payment like with a term loan, and there's no hit to your personal credit. The downside, of course, is the risk of losing your life's savings should things go south. And unfortunately, things do tend to go south a lot. Although there are some success stories, the IRS has reported that most ROBS businesses either fail, are on the way to failure, or have high instances of bankruptcy, liens, and corporate dissolutions.

ROBS structures come with strict IRS and retirement plan filing obligations, including annual plan reporting. Missing these filings can disqualify the plan and lead to some pretty bad tax consequences. If you're considering this option, I highly recommend consulting a tax attorney and/or a qualified ROBS provider before proceeding with the process.

Home Equity Options

If you're a home owner, another option is to tap into your home equity. Let's say, for example, that your home is worth $500,000 and you currently still owe $250,000 on your mortgage. That means you have about $250,000 in equity (what you've already paid down). Some lenders will let you borrow against some of that equity and use the money for whatever purpose you want, including opening a franchise.

There are two ways to do this: a home equity loan or a home equity line of credit (HELOC).

Home equity loan: A home equity loan gives you a lump sum of money that's paid over time in set increments for a specific term. It can be used toward things like franchise fees, build-out costs, equipment purchases, or working capital.

HELOC: A home equity line of credit (HELOC) works more like a credit card or business line of credit. You can draw money as needed up to its specified approved limit.

On one hand, both of these options typically have lower rates than other types of business loans and are funded faster. On the other hand, your house is the collateral, so if the franchise fails, you could lose your home.

The Investment Requirements for Top Franchise Brands

The brands I'm about to list (all of which you've probably heard of) are the most-financed franchises out there. Here are some details about each of them, including minimum liquid capital, net worth, franchise fee, and total investment range.

Brand	Minimum liquid capital	Minimum net worth	Franchise fee	Total initial investment	Source
McDonald's	$500,000 (non-borrowed)	Not specified on entrepreneur listing (widely cited $750,000+)	$45,000	$1,471,000 to $2,728,000	Entrepreneur Franchise 500: McDonald's
Subway	$100,000 per location	$150,000	$15,000	$238,625 to $536,745	Entrepreneur Franchise 500: Subway
Dunkin'	$250,000	$500,000	$40,000 to $90,000	$437,500 to $1,832,500	Entrepreneur Franchise 500: Dunkin'
Anytime Fitness	$100,000	$500,000	$42,500	$458,826 to $907,607	Entrepreneur Franchise 500: Anytime Fitness
Dairy Queen	$400,000	$750,000	$45,000	$1,516,200 to $2,543,050	Entrepreneur Franchise 500: Dairy Queen

Brand-specific figures can change as franchisors update their FDD (I'll explain more about this later on), but these are the most up-to-date numbers as of June 2026. Here you can see that right now, McDonald's, Dairy Queen, and Dunkin' Donuts carry the highest liquid capital requirements to franchise their brand.

When I say “liquid capital,” I mean cash and easily convertible assets. (Net worth, by contrast, can include home equity, retirement accounts, and other assets that demonstrate financial stability but aren't typically accessible cash.) McDonald's takes this a step further by requiring liquid capital to be non-borrowed, meaning your own money and not a loan.

At the same time, those same top brands (except McDonald's) rank among the most-funded SBA franchise brands by volume. In other words, you could argue that the high capital requirement is partially offset by the strong brand history, which tends to make lenders more comfortable extending SBA loans.

How To Read a Franchise Disclosure Document

I've been frequently mentioning something called a franchise disclosure document, or an “FDD.” An FDD is a federally-mandated disclosure document that every franchisor must provide to prospective franchisees.

The Federal Trade Commission, which is a government agency designed to protect consumers, has its own set of rules for U.S. franchises. One of them is that franchisors provide this document at least 14 days before signing any franchise agreement, receiving money, or performing any other type of binding action. The idea with this time window is to make sure that the rules are read carefully by anyone interested in opening their own franchise location.

There are a few key items in the 23-section document that I recommend would-be franchisees pay extra close attention to before applying for any financing. They include:

• Item 5: Initial fees

  • This part will list the franchise fee, training fees, and any other up-front costs payable to the franchisor

• Item 6: Other fees

  • Details the royalty fees, marketing fund contributions, ongoing technology fees, and other recurring costs that may be required

• Item 7: Estimated initial investment

  • Gives you a full read out (on both a low end and a high end) of expected costs to open a franchise location with that particular company, including: franchise fee, build-out, equipment, signage, inventory, working capital, real estate, training travel.

• Item 8: Restrictions on sources of products and services

  • Lists any required suppliers, if there are any, which lenders want to know because it can affect ongoing costs of the franchise

• Item 10: Financing

  • Goes into whether the franchisor or one of its affiliates offers any direct financing, and if so, details the terms

  • If it's blank, your brand doesn't offer franchise financing directly

• Item 19: Financial performance representations

  • This is optional, but when it's included, it gives historical or projected unit-level financial data

  • This part is critical for forecasting whether the franchise will service the debt

• Item 20: Outlets and franchisee information

  • Details the number of locations, year-over-year growth, closures, and transfers in the past three years

  • A high closure rate signals risk, and lenders will weigh this

Items 7 and 19 are especially pertinent to lenders. Together, they give them (and you) an idea of whether the cash flow can support the loan you're considering. If you're considering opening a franchise and have received an FDD, I recommend consulting an attorney before making decisions or signing anything.

How To Know Which Financing Options Best Fit Your Franchise

If you're still not entirely sure which of these financing options types is best for your particular franchise, don't worry. It's a big decision. If you were my client, this is how I'd tell you to think about it next:

An SBA 7(a) loan is your best bet if:

• The target brand is on the SBA Franchise Directory

• You're a first-time franchisee with 640+ credit and strong personal financials but no existing business history

• The total investment is $200K to $5M

• You can wait 30 to 90 days for approval

• You want the longest available repayment term (up to 25 years on real estate)

An SBA 504 loan is better when:

• You're buying the building for a franchise location, not leasing

• You're financing long-life equipment with 10+ years of useful life

• The deal exceeds $5M and you can split between bank, CDC, and your equity

Go with a conventional bank loan if:

• You're an established franchisee with 2+ years operating and 680+ credit

• You have an existing banking relationship that accelerates underwriting

• The target brand is NOT on the SBA Franchise Directory

• You want structural flexibility the SBA doesn't allow (interest-only periods, balloon payments)

Choose an alternative or online lender when:

• You need capital fast (days, not months)

• Your credit is 550 to 680 (too low for most SBA-approved lenders or banks)

• You need working capital or equipment financing rather than a major acquisition loan

• You're an existing franchisee bridging a cash flow gap or expanding to a second unit

Franchisor in-house financing is best if:

• The franchisor offers it per FDD Item 10

• You can't qualify for SBA or bank financing

• The brand offers favorable terms (deferred franchise fee, royalty reduction in year 1, etc.)

Go with ROBS if:

• You have $50K+ in qualifying retirement accounts

• You want to avoid debt entirely

• You're comfortable putting retirement savings at risk

• You can absorb the C-corp structure and ongoing administration costs

Consider tapping into your home equity when:

• You have substantial home equity

• You may qualify for other types of franchise financing (or at least for good rates) but have strong personal finances

• You have a strong, realistic repayment plan

• You understand that failure to repay could put your home at risk

FAQs About Franchise Loans and Financing

Here are answers to questions I often get about financing for franchisees.

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