Franchise industry guide
Franchise Financing: Expansion, Transfers and Required Improvements
Adding a unit, buying an existing location and completing a remodel the franchisor requires each call for a different structure. Here is how your franchise documents shape the budget and what providers may review.
Share your units’ performance and the project budget so an advisor can review which structures providers may offer.
By Correia Financial
The short answer
Franchise financing usually follows the project. An SBA 7(a) loan or a term loan often fits a new unit or the purchase of an existing one, equipment financing may fit the equipment the system requires, and a term loan often fits a defined remodel. For an SBA loan, the brand must appear in SBA’s Franchise Directory, which lists the brands SBA has found eligible.
What sets a franchise apart is the franchisor. Its disclosure document, approval rights and upgrade requirements shape the budget, and royalties continue whether or not a unit is profitable, so a realistic request shows the business can carry those fees and the new payment together.
Choose the situation closest to yours
Adding a unit
You already operate one or more units and the franchisor has approved a new site. The budget starts from the franchisor’s estimated initial investment and is replaced with your actual lease and contractor bids.
What may fit: An SBA 7(a) loan or a term loan may fit the build-out and opening costs, with equipment financing for the equipment package.
Buying a resale
You are buying an existing franchised location from its current owner. The franchisor’s approval of the transfer, where the agreement requires it, is part of the deal, and the unit’s own sales history becomes part of the review.
What may fit: An SBA 7(a) loan may fit, since changes of ownership are an eligible use, and a term loan may fit when SBA is not the route.
Required remodel
Your agreement lets the franchisor require new finishes, signage or layout changes, and a deadline is set. The unit keeps operating, or closes briefly, while the work is done.
What may fit: A term loan often fits a defined remodel budget, and equipment financing may fit the equipment within it.
Equipment refresh
The franchisor introduces new kitchen, service or point of sale equipment that may have to come from approved suppliers. You need specific items installed by a set date.
What may fit: Equipment financing often fits, because the equipment typically secures the financing and payments can follow its useful life.
On this page
How a franchise changes a financing request
A franchised business is reviewed much like any other operating business: providers look at revenue, cash flow, existing debt and the project the money will pay for. The difference is a third party with rights over the project. Your franchisor may need to approve a new site or a sale, may set the equipment and design you must use and may require upgrades during the term.
Those rights show up in two documents a provider may ask to see: the franchise agreement you signed and the Franchise Disclosure Document (FDD) the franchisor gave you before you signed. Under the Federal Trade Commission’s Franchise Rule, a franchisor must furnish its disclosure document at least 14 calendar days before a prospective franchisee signs a binding agreement or pays anything. California adds its own layer: the Department of Financial Protection and Innovation says the Franchise Investment Law requires franchisors to register with the Department before offering and selling franchises in the state.
- Franchisor termsApproval of the site, sale or remodel scope under your agreement
- BudgetDisclosure estimates replaced with your lease, bids and quotes
- StructureMatch each cost to a product: loan, equipment financing or SBA
- Provider reviewYour units’ cash flow, the brand and the project
- ClosingFunds disbursed to the project, payments begin
A general illustration. The order and timing depend on your agreement, the project and the provider.
Which parts of the disclosure document shape the budget
The FDD is organized into numbered Items defined in federal regulation. A handful of them matter directly when you size a request or explain it to a provider.
| Item | What it discloses | Why it matters for financing |
|---|---|---|
| Item 6: Other fees | All other fees you pay the franchisor or its affiliates | Royalties and fund contributions reduce the cash available for loan payments |
| Item 7: Estimated initial investment | Fees, real property, equipment, construction, remodeling, opening inventory and deposits, plus additional funds for an initial period | A starting point for a new unit budget, to be replaced with your actual bids |
| Item 8: Restrictions on sources | Goods and services you must buy from the franchisor or approved suppliers | Equipment quotes may need to come from specific vendors |
| Item 9: Franchisee’s obligations | Includes maintenance, appearance and remodeling requirements | Signals future upgrade costs you may need to fund |
| Item 10: Financing | Terms of any financing offered by the franchisor or its affiliates | An offer to compare against outside options |
| Item 17: Renewal, termination, transfer | Renewal requirements, and the conditions for franchisor approval of a transfer | Defines what a buyer or seller must do before a resale can close |
| Item 20: Outlets | Outlet counts for three years and contacts for current and former franchisees | Lets you check how units in the system have fared |
Item 7 also tells you what the franchisor expects you to hold in reserve. The rule requires an "additional funds" line covering an initial period of at least three months or a reasonable period for the industry. Treat that line as a floor, not a target, and replace every estimate with your own lease terms and contractor bids before you apply.
Financing an additional unit of the same brand
When you already operate a unit, its track record carries most of the weight. Providers can see real sales, real payroll and how the business handled its existing payments, which is more useful to them than any projection for the new site. The new unit, by contrast, will not produce revenue until it opens, and Item 11 of the FDD discloses the typical time between signing the agreement and opening.
That gap is why the structure matters. An SBA 7(a) loan can combine several uses in one loan, including working capital, equipment, furniture and fixtures, and improvements to buildings, with a maximum of $5 million. A conventional term loan can fund the build-out on a set schedule, and equipment financing can carry the kitchen, service or production equipment the franchisor specifies. If the new site sits in a different entity or bank account, see how to organize an application for multiple locations.
Hypothetical example: splitting a second unit budget
An owner runs one profitable unit and has the franchisor’s approval for a second site. The budget, built from bids rather than the FDD ranges, comes to $600,000: $300,000 of leasehold improvements, $150,000 of equipment from approved suppliers, $50,000 for the initial franchise fee and opening inventory, and $100,000 held in reserve for the first months of operation.
One approach finances the improvements, fee and reserve together as a term or SBA loan and finances the equipment separately, secured by the equipment itself. The owner then tests the combined payments against the existing unit’s cash flow after its own royalties, because the new site may not cover anything until it builds sales.
An illustration with round numbers, not a quote or an offer. Actual amounts, structures and terms depend on the project and on each provider’s review.
Buying an existing franchise unit: what a transfer adds
A resale gives a provider something a new unit cannot: the location’s own history. It also adds a step. Item 17 of the FDD defines what counts as a transfer, whether the franchisor must approve it and the conditions for that approval, and the FTC notes that Item 17 explains the steps needed to get the franchisor’s approval to sell a franchise.
SBA lists changes of ownership, complete or partial, as an eligible 7(a) use. SBA’s guidance for buyers of an existing business suggests asking about contracts, leases, cash flow and inventory, and lists financial statements and tax returns among the documents to evaluate with an attorney and an accountant. For the purchase itself, see how to prepare the buyer and business financials for an acquisition and what SBA acquisition financing requires.
What the selling unit usually needs to show
- Financial statements and tax returns for the location
- The current franchise agreement, lease and key contracts
- Equipment condition and any remodel the franchisor has required
- Inventory and how it will be counted at closing
What you as the buyer usually need to show
- Your operating experience and the franchisor’s approval path
- The purchase agreement and how the price was set
- Your own funds going into the deal
- How the unit’s cash flow covers royalties and the new payment
If the franchisor requires the buyer to complete upgrades as a condition of approving the transfer, price that work into the deal before you apply, so one request covers both the purchase and the improvements.
Required improvements: funding a remodel the franchisor sets
Many franchise agreements give the franchisor a say in how a unit looks and runs over time. Item 9 of the FDD lists maintenance, appearance and remodeling requirements among the franchisee’s obligations, Item 11 discloses any obligation to upgrade or update computer systems during the term, and the FTC warns that some franchisors require periodic renovations or design changes that can increase your costs.
A required remodel has a defined scope and usually a deadline, which suits a term loan sized to the bids. Equipment that is replaced as part of the work can be financed separately, and an SBA 7(a) loan can cover building improvements and fixtures when the project is large enough to justify the extra documentation.
Match the repayment period to the time left on your franchise term. The FTC notes that renewals are not automatic, so a schedule that runs past the end of your current agreement means paying for improvements after your right to operate could end. Read the renewal requirements in Item 17 before choosing a term.
Plan for the disruption, too. If the unit closes or runs with reduced capacity during the work, sales dip while payroll, rent, royalties and the new payment continue. Building a few weeks of that shortfall into the budget is usually simpler than looking for separate funding mid-project. For leased space, financing a tenant improvement project covers landlord allowances and lease terms in more depth.
What providers may review for a franchise request
Requirements are provider dependent, and no single credit score, time in business or revenue figure applies across providers. For SBA loans, SBA itself requires that the business operate for profit, be small under SBA size rules, be creditworthy with a reasonable ability to repay, and be unable to obtain the desired credit on reasonable terms from non-government sources.
Why the SBA Franchise Directory matters
SBA’s Franchise Directory lists the franchises and other brands SBA has reviewed and found eligible for SBA financial assistance, and lenders can rely on it rather than reviewing brand documents for affiliation or eligibility. SBA notes that a listing is not an endorsement or approval of the brand.
The underlying question is affiliation. SBA regulations say the standard quality, advertising and accounting controls in a franchise agreement generally do not make the franchisor an affiliate, provided the franchisee can profit from its efforts and bears the risk of loss, but affiliation may arise through common ownership, common management or excessive restrictions on selling the franchise interest. If your brand is not listed, SBA’s guidance explains how to submit it for review: send the franchise agreements, the FDD and any other documents an applicant would be required to sign to franchise@sba.gov.
About your business
- How have existing units performed over the last year?
- What debt and leases do they already carry?
- Do deposits match reported sales?
About the brand
- Is the brand eligible in SBA’s directory, if SBA is the route?
- Has the franchisor approved the site, sale or scope?
- What fees and upgrade terms apply?
About the project
- Are bids and equipment quotes current?
- How long until the new spend produces revenue?
- Does the reserve cover the gap?
Costs and obligations to weigh before you commit
Loans charge interest, and every offer should show the amount disbursed, the total you will repay, the payment amount and frequency, an estimated APR where available and every fee, including any fee withheld from the funds you receive. Equipment financing is typically secured by the equipment, and a lease is not a loan, so check the end of term terms on any lease. Ask whether the provider will file a UCC financing statement or take a lien on other business assets, and whether owners must sign a personal guarantee.
SBA loans have their own provisions. SBA’s lender guidance sets 7(a) maturities at ten years or less unless the loan finances or refinances real estate or equipment with a useful life beyond ten years, and it notes that 7(a) loans with maturities of 15 years or longer can carry prepayment fees of 5%, 3% and 1% in years one through three.
Then add the franchise side. The FTC cautions that you typically must pay royalties for the use of the franchisor’s name even if you are losing money, and advertising fund contributions may continue as well. A request is realistic only if the unit can carry those fees and the new payment in a slow month.
When financing may not be the right next step
Financing amplifies a unit that already works. It rarely rescues one that does not. If an existing unit has not reached steady profit, adding a second location doubles the exposure before the first has proven itself.
Be careful with projections. Item 19 permits a franchisor to share financial performance information only with a reasonable basis and written substantiation. If the disclosure document contains none, treat any sales projection for a new unit as your own estimate, not the franchisor’s. The FTC also notes that a lender’s approval does not necessarily mean a franchise is a safe or good investment, and suggests speaking with current and former franchisees, whose contacts appear in Item 20.
Finally, compare sources. Item 10 discloses any financing the franchisor or its affiliates offer, and reserves you already hold may be cheaper than any outside option for a modest remodel. When a required remodel lands close to the end of your agreement, settle the renewal terms first.
How to prepare a franchise financing request
- 1
Confirm the franchisor’s position
Know what approval the site, transfer or remodel needs under your agreement and where that approval stands.
- 2
Build the budget from real numbers
Use Item 7 as a reference, then replace it with your lease, contractor bids, approved supplier quotes and a reserve for the opening or construction period.
- 3
Match each cost to a structure
Long-lived improvements, equipment and short operating gaps often fit different products. One request can combine them if the payments still fit.
- 4
Gather the documents
Recent business bank statements, tax returns and financial statements for your units, the franchise agreement and FDD, and for a resale, the purchase agreement and the seller’s financials.
Correia Financial is a brokerage, not a lender. It reviews your business and explores options with third party providers, who make every credit decision and set the terms.
Frequently asked questions
Can I get an SBA loan for a franchise?
Possibly, if the brand is listed in SBA’s Franchise Directory and your business meets SBA and lender requirements, including creditworthiness and a reasonable ability to repay. The directory lists brands SBA has reviewed and found eligible. If a brand is not listed, SBA accepts the agreements and disclosure document for review at franchise@sba.gov.
Does the franchisor have to approve my financing?
Your agreement decides what the franchisor must approve. Item 17 of the disclosure document covers approval of a transfer, and Item 12 says whether a location must be approved. A provider may ask to see evidence of those approvals before closing.
Can financing cover the initial franchise fee?
It can be part of a broader request. Item 7 lists the initial fee alongside equipment, construction and opening inventory, and an SBA 7(a) loan can combine several uses. Whether a provider includes the fee depends on its own review.
How do royalties affect how much I can borrow?
Royalties and other fees listed in Item 6 reduce the cash a unit has left for loan payments. The FTC notes that royalties are typically owed even when a unit is losing money, so providers and owners should test payments after those fees.
Should I use financing the franchisor offers?
Compare it like any other offer. Item 10 of the disclosure document must describe the terms of financing the franchisor or its affiliates offer, including leases and installment contracts. Line those terms up against outside options on total cost, payment schedule and collateral.
Can I finance a remodel near the end of my franchise term?
You can, but check renewal first. The FTC notes renewals are not automatic and may come with less favorable terms, so a repayment schedule that outlasts your agreement carries extra risk. Item 17 lists what is required to renew.
Is Correia Financial a lender?
No. Correia Financial is a business financing brokerage. It reviews your business and explores options with third party providers, who make the credit decisions and set the terms. An application is a request for review, and a provider may decline it.
Sources
- 16 CFR 436.2: Obligation to furnish documents (Franchise Rule)Electronic Code of Federal Regulations
- 16 CFR 436.5: Disclosure items (Franchise Rule)Electronic Code of Federal Regulations
- A Consumer’s Guide to Buying a FranchiseFederal Trade Commission
- SBA Franchise DirectoryU.S. Small Business Administration
- Buy an existing business or franchiseU.S. Small Business Administration
- 7(a) loansU.S. Small Business Administration
- SBA lendersU.S. Small Business Administration
- 13 CFR 121.103: How does SBA determine affiliation?Electronic Code of Federal Regulations
- About the Franchise Investment LawCalifornia Department of Financial Protection and Innovation
Sources reviewed October 12, 2026.