Franchise finance

Franchise finance is borrowing to buy and open a franchise: the initial fee, the fit-out, equipment, vehicles, stock and the cash to trade until the business covers its costs. Lenders assess the brand’s trading record across its network as well as your own record and stake. You repay from your own unit’s takings, after the fees the franchise agreement sets.

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What the money pays for

Buying a franchise means paying the franchisor an initial fee for the right to trade under its name, then paying to open the business: fitting out premises, buying equipment or a vehicle in the brand’s livery, opening stock, launch marketing and the training the franchisor requires. On top of that you need cash to trade until the unit covers its costs, and to pay the management service fee and any marketing levy the agreement sets.

The franchisor’s information pack should set out each cost and, for an established brand, figures from existing franchisees. Ask for those figures, then speak to existing franchisees about how long their units took to break even and what they spent beyond the franchisor’s estimate.

Buying an existing unit from its current owner, known as a resale, is a different purchase. You pay for a business with its own trading history, which a lender can assess from its accounts, and the franchisor has to approve you as the new owner before the sale completes.

How a franchise is funded

Lenders assess a franchise on two records: yours and the brand’s. A brand with many units trading over several years, published figures and a franchisor with solid accounts gives a lender evidence a new independent business cannot offer. A young brand with a handful of units gives it much less, and the lender will rely more on you, your stake and any security or guarantee.

A franchise is eligible for a Start Up Loan on the same terms as any new business: up to £25,000 per person at a fixed 7.5% a year, at November 2026, over 1 to 5 years, with up to 12 months of mentoring. Larger sums come from a bank or specialist lender as a term loan, and lenders accredited under the Growth Guarantee Scheme can use it for term loans from £25,001. Vans, vehicles and equipment can go on asset finance, secured on the asset.

Lenders expect you to put in your own money as well. A funding search through Swoop covers limited companies and LLPs, and sole traders and partnerships borrowing more than £25,000. A sole trader buying a franchise with £25,000 or less of borrowing should apply to Start Up Loans directly or to their own bank.

Funding plan for an £80,000 franchise

Illustrative example

A franchisee sets up a limited company to open a new unit costing £80,000. She puts in £20,000, takes a Start Up Loan of £25,000 at the fixed 7.5% over five years, and borrows £35,000 from a bank over five years at an assumed 10% a year.

Initial franchise fee
£20,000
Fit-out and equipment
£40,000
Opening stock and launch marketing
£8,000
Cash to trade until the unit covers its costs
£12,000
Start Up Loan monthly repayment
£500.95
Bank loan monthly repayment
£743.65
Monthly loan repayments to cover from takings
£1,244.60

The franchisee’s £20,000, the £25,000 Start Up Loan and the £35,000 bank loan meet the £80,000 in full. The cash flow forecast has to show £1,244.60 a month of repayments met after the management service fee, the marketing levy and the franchisee’s own drawings.

Terms in a franchise agreement that affect the loan

Initial franchise fee
Paid to the franchisor for the right to trade, the training and the launch support. The fee is not security, so a lender cannot recover it if the business fails.
Management service fee
An ongoing charge, often a percentage of turnover, paid before profit. The lender deducts it when testing affordability.
Marketing levy
A contribution to the brand’s national marketing, set in the agreement.
Term and renewal
The agreement should run longer than the loan, so the business can trade under the brand until the debt is repaid.
Territory
The area in which you have the right to trade. A lender reads it to judge how protected your income is.
Transfer
The terms on which you can sell the unit. They set what a buyer would pay if you had to sell and repay the loan.

What lenders check in a franchise application

You first: your experience in running a business or managing people, your personal credit file, how much of your own money you are putting in, and whether you will give a personal guarantee. The lender will want a business plan and cash flow forecast built from the franchisor’s figures and tested against what existing franchisees achieve.

Then the brand: how long it has franchised, how many units trade, how many have closed or changed hands, and the franchisor’s own accounts. The lender reads the franchise agreement for the fees, the term, the territory and what happens if the franchisor fails.

Then the site, if there is one: the lease terms, the rent, and whether the lease runs as long as the loan. A lender lending against a fit-out in leased premises has little to recover if the lease ends early, so it prices that risk into the offer. The documents a lender asks for lists what to gather.

What to have ready

Business loan calculator

The monthly repayment on a business loan, the interest over the term and the total you repay with the arrangement fee.

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Questions people ask

Can I get a loan to buy a franchise?

Yes. A franchise can be funded with a Start Up Loan of up to £25,000 per person, a term loan from a bank or specialist lender, asset finance for vehicles and equipment, or a combination. Lenders look at the brand’s record across its network as well as your own credit, experience and stake, and they test the repayments against your unit’s forecast after franchise fees.

Can I use a Start Up Loan for a franchise?

Yes. A franchise is eligible if you meet the normal criteria: 18 or over, UK resident, a UK-based business that is new or has traded for up to 60 months, and a pass on the credit and affordability checks. You can borrow up to £25,000 at a fixed 7.5% a year, at November 2026, and receive the same mentoring, for up to 12 months, as any other first-time recipient.

How much of my own money do I need to buy a franchise?

There is no set figure. Each lender decides, based on the total cost, the brand’s record, the security available and your own finances. Lenders expect a real contribution from you because it shows commitment and reduces their risk. Keep enough back to cover your household costs while the unit builds up, since the loan repayments start whether or not it is profitable yet.

Is it easier to get finance for a franchise than for a new business?

It can be, if the brand has a long record across many units, because the lender can see how similar units have performed. A young brand gives the lender little more evidence than an independent start-up. Either way, the lender still assesses you, your stake and whether your own unit can meet the repayments after fees.

Can I get finance to buy an existing franchise?

Yes. A resale unit comes with its own accounts, which a lender can use to judge affordability, so it can be funded like any business purchase, with a term loan, asset finance and your own money. The franchisor must approve you as the buyer. A Start Up Loan can be used to buy an existing business you have not owned for more than 60 months. See acquisition finance.

Finance is subject to status and to the lender’s terms. A personal guarantee makes you liable for the company’s debt if it does not repay, and it can be enforced against your own assets, including your home. Nothing here is a personal recommendation.

Business loans

Start Up Loans

The government-backed personal loan of up to £25,000 for new and young businesses, with up to 12 months of mentoring.

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Start-up business funding

Your own money, Start Up Loans, angels, grants and asset finance for a business in its first years.

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Asset finance

Asset finance spreads the cost of equipment, vehicles and machinery over the years you use them, with the asset as the funder’s security.

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Acquisition finance

Senior debt, asset-backed lending, vendor finance and equity stacked to fund the purchase of a business.

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All business funding

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Funding searches run on Swoop’s platform. Swoop Finance Limited is a credit broker and not a lender, and is authorised and regulated by the Financial Conduct Authority (FRN 936513). Buzz Accounting Ltd introduces businesses to Swoop and may receive a fee from Swoop when funding is arranged. Business funding is separate from the financial advice Equity & General Financial Services Limited gives through this website. Finance is subject to status, and a lender may ask a director for a personal guarantee.

Cover for a personal guarantee

If a lender asks you to guarantee the company’s borrowing, our advisers can advise on life cover for that debt.

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