Franchise restaurants from a lender’s point of view
Lenders like restaurant franchises for a simple reason: they can see how the system performs across many locations. A franchise brings a proven menu, operating manuals, supply chain, training and brand recognition. The Franchise Disclosure Document lays out investment costs and, for many brands, financial performance information. That reduces the guesswork that makes independent startups hard to finance.
The trade-off is more parties at the table. The franchisor approves you, approves the site, sets build-out standards and may require minimum liquidity and net worth. Lenders work within those requirements.
For the general mechanics of franchise lending, see franchise financing. This page focuses on restaurant franchises.
Restaurant franchise situations we finance
- First unit: a new franchisee opening a quick-service, fast-casual, coffee or full-service franchise
- Multi-unit development: opening several units on a development schedule, financed unit by unit
- Resales: buying an existing franchised restaurant from a current franchisee, with real financials to underwrite
- Remodels: franchisor-required reimaging or remodel programs
- Relocations and drive-through additions
- Refinancing existing franchise debt to free up cash for the next unit
Loan types that fit restaurant franchisees
- SBA loans. SBA 7(a) is the most common path for first units and resales, covering the franchise fee, build-out, equipment and working capital. SBA 504 fits units where you buy or build the real estate.
- Equipment financing. Franchise equipment packages are standardized, which lenders like.
- Commercial real estate loans for freestanding pad-site units.
- Construction and renovation loans for ground-up units and required remodels.
- Expansion loans and multi-location financing for franchisees adding units.
- Conventional bank loans for experienced multi-unit operators with strong financials.
What lenders want from restaurant franchisees
- The FDD and franchise agreement, including Item 7 (estimated initial investment) and Item 19 (financial performance representations, if the brand provides them)
- Franchisor approval of you and, ideally, the site
- Liquidity and net worth that meet both the franchisor’s and the lender’s requirements
- Restaurant or management experience, especially for full-service brands
- Site details: lease or purchase agreement, demographics and the franchisor’s site approval
- Projections built from the FDD and adjusted to your market
- For resales: the existing unit’s tax returns, profit and loss statements and bank statements
Franchise growth in Colorado and Tennessee
Suburban growth drives franchise development in both states. In Colorado, new retail centers along the northern I-25 corridor in Thornton, Westminster, Loveland and Windsor, and south in Castle Rock and Parker, bring a steady flow of quick-service and fast-casual units. Colorado Springs and Pueblo add their own corridors along I-25 and major arterials.
In Tennessee, Middle Tennessee’s growth in Murfreesboro, Smyrna, Spring Hill, Columbia, Gallatin and Lebanon has made it one of the busier franchise development areas in the Southeast. Clarksville, with Fort Campbell nearby, and the Memphis suburbs also see regular franchise openings.
Franchise units serving alcohol still need local and state licensing: Colorado’s Liquor Enforcement Division and local authority, or Tennessee’s Alcoholic Beverage Commission and local beer board.
First unit vs resale vs new development
The path you choose changes how financeable the deal is:
- Buying an existing unit (resale) is usually the easiest to finance, because lenders can review real tax returns, sales and profit for that exact location. The franchisor must approve the transfer, and a remodel may be required as part of it.
- A new unit for an experienced franchisee is the next easiest, because your existing units show you can run the system.
- A first-time franchisee opening a new unit faces the most scrutiny. Lenders lean on the franchisor’s track record, your management experience and your liquidity.
If you are new to franchising and lenders are hesitant about a ground-up unit, asking the franchisor about resale opportunities can open more doors. A resale also gives you trained staff and existing customers from day one, which shortens the ramp-up period.
Questions owners ask
How do I finance a restaurant franchise?
Most first-time franchisees use an SBA 7(a) loan covering the franchise fee, build-out, equipment and working capital, sometimes with separate equipment financing. You will need franchisor approval, the FDD, liquid cash for the equity injection, relevant experience and a site. Buying an existing franchised unit with real financials can be easier to finance than a brand-new one.
Do lenders prefer certain franchise brands?
Lenders are generally more comfortable with brands that have long track records, many operating units and a history of franchisees repaying loans. Newer or smaller brands can still be financed, but expect more questions and documentation. Ask the franchisor which lenders have funded its franchisees, and we can compare those options with the wider market.
Can I finance a second franchise unit?
Yes, and it is often easier than the first. Lenders can underwrite your existing unit’s performance alongside the new site. Multi-unit franchisees commonly use SBA loans, conventional bank loans or a combination for each new unit, with equipment financing for standardized packages. Your existing unit’s debt load affects how much more you can take on.
What franchise costs can be financed?
Depending on the program, financing can cover the initial franchise fee, build-out to franchisor standards, equipment, signage, technology, opening inventory, training costs and working capital. Real estate can be financed separately for pad-site units. Lenders still require your own equity in the project, so not every dollar can be borrowed.