2026 Complete Guide
5 ways to finance a franchise: SBA 7(a), SBA 504, equipment financing, credit lines and term loans. Amounts, rates and timing for each.
Franchise financing
Each serves different franchise business needs
Best for: Initial franchise purchase, multi-unit expansion, buying out a co-franchisee
Best for: Buying the building that houses your franchise location — ideal for QSR and auto service
Best for: Kitchen equipment, fitness machines, POS systems, service equipment packages
Best for: Royalty fees, marketing fund contributions, payroll, seasonal cash flow
Best for: Remodel requirements, technology upgrades, expansion, any franchise operating need
Side by side
| Loan type | Amount | Rate | Term | Approval |
|---|---|---|---|---|
| SBA 7(a) Franchise Loan | $50K–$5M | 8.5–11.5% APR | 10–25 years | 30–60 days |
| SBA 504 Loan | $125K–$5M | 6.25–7.25% APR | 10–25 years | 60–90 days |
| Equipment Financing | $10K–$500K | 6.5–20% APR | 2–7 years | 1–5 days |
| Business Line of Credit | $10K–$500K | 8.75–45% APR | Revolving | 3–14 days |
| Business Term Loan | $25K–$750K | 7.5–45% APR | 1–5 years | 3–14 days |
Typical ranges, updated September 2026. Your terms depend on your revenue, credit, time in business and the lender.
Worked example
Start with the franchisor’s Franchise Disclosure Document: Item 7 lists the estimated initial investment and Item 19 any financial performance figures the franchisor chooses to disclose — the two pages a lender reads first. For an SBA loan, the brand must also be listed in the SBA Franchise Directory. Example: an Item 7 total of $600,000 (franchise fee, buildout, equipment, opening inventory and working capital). Assumptions for illustration only: SBA’s 10% minimum equity for a startup, a 10-year SBA 7(a) loan at Prime 7.00% + 2.75%, computed with our SBA 7(a) calculator.
| Amount | |
|---|---|
| Total initial investment (FDD Item 7) | $600,000 |
| Your equity (10% minimum) | $60,000 |
| SBA 7(a) loan, 10 years, 9.75% | $540,000 — $7,062/mo |
| Annual debt service | $84,739 |
| Cash flow needed at 1.25x coverage | about $105,900 a year |
Ten percent is the floor; lenders often ask a first-time franchisee for more, and for liquidity beyond the equity to carry the opening months. A new unit has no history, so the lender leans on Item 19, your management experience and the franchisor’s track record.
Sources: FTC Franchise Rule, 16 CFR 436.5(g) (Item 7) and 436.5(s) (Item 19); SBA SOP 50 10 8 (startup equity injection).
FAQ
Common questions about franchise financing
Yes. SBA loans are the most popular financing for franchise purchases. If your franchise is on the SBA Franchise Directory, underwriting is significantly faster. SBA 7(a) loans cover franchise fees, equipment, working capital, and real estate up to $5M at 8.5–11.5% APR. Down payment is typically 10–30%.
SBA requires at least 10% equity for a new business, so a 7(a) loan can cover up to about 90% of the franchisor’s estimated initial investment (FDD Item 7) if you qualify, and lenders often ask first-time franchisees for more. On a $600,000 Item 7 total, 10% is $60,000 and a $540,000, 10-year loan costs about $7,062 a month.
It is SBA’s list of franchise brands whose franchise agreements SBA has reviewed for eligibility. For an SBA 7(a) or 504 loan to a franchisee, the brand must be listed in the SBA Franchise Directory; if it is not, the franchisor can apply to be added. Listing does not mean SBA approves your loan — the lender still underwrites you and the unit.
Franchise startup costs vary widely: QSR concepts run $200K–$1M+, service franchises $50K–$300K, fitness studios $100K–$500K. SBA loans cover 70–90% of total cost, so you need 10–30% as a down payment. Many first-time franchisees use SBA 7(a) for the business and SBA 504 for real estate.
Multi-unit expansion is one of the strongest use cases for SBA loans, because the first location gives lenders a track record. They evaluate your existing unit's EBITDA, franchise agreement terms, and territory rights. Term loans also work for smaller expansion needs.
Equipment financing covers any capital equipment required to open or operate your franchise: kitchen equipment, POS systems, fitness machines, automotive tools, signage, furniture, and more. Approval in 1–5 days, 600+ credit, and the equipment is collateral.
Most SBA loans require lender approval for ownership transfers. The new buyer typically assumes the loan or refinances. Some loans have due-on-sale clauses requiring immediate repayment. Paying off early can cost a fee: on an SBA 7(a) loan of 15 years or longer, prepaying more than 25% of the balance in any of the first three years means a fee to SBA of 5%, 3% or 1% of the amount prepaid in the first, second or third year; an SBA 504 loan’s SBA portion carries a prepayment penalty that declines over the first half of its term — the first 10 years of a 20- or 25-year loan.
Gas Station & Convenience StoreInventory, upgrades & property acquisition loans 
Gym & Fitness CenterEquipment, membership growth & expansion funding 
Healthcare PracticePractice growth, equipment & acquisition loans 
Hotels & HospitalityRenovation, seasonal funding & property loans 
HVAC & PlumbingFleet expansion, equipment financing, and working capital for HVAC and plumbing 
LaundromatEquipment replacement, build-out & new locations Logistics & DeliveryFleet expansion, technology upgrades, and working capital for logistics and last-mile delivery 
ManufacturingEquipment, payroll & working capital loans Compare bank and non-bank lenders with one application — an advisor reviews it before any lender sees it.
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