Franchise finance: how to fund buying a franchise

Franchise finance is the funding used to buy a franchise and start trading, usually a mix of your own money and borrowing. Start Up Loans defines a franchise as a business where an established owner sells the rights to use their company name, trademarks and business model to independent operators.

The franchisor is the business owner who sells the right to trade under their name. The franchisee is the person who buys that right and runs the business independently. The finance is yours, not the franchisor’s, so it is your credit and your plan that a lender looks at.

Buying a franchise costs the franchise fee plus everything needed to open and run the business until it makes a profit, and the fee is usually the smaller part of the picture. Start Up Loans says franchisees typically pay a one-off franchise fee plus an ongoing percentage of sales revenue and other fees.

Start Up Loans spells out the point about working capital: you will need enough to carry you through until your business starts making a profit. Our guide to working capital explains why that cushion matters, and a cash flow forecast shows how much you need.

The main ways are your own savings, a business loan, asset finance for equipment or vehicles, and the Start Up Loans scheme, and many buyers combine more than one. Start Up Loans lists personal savings, support from friends and family, bank loans and government-backed initiatives as the common routes.

Capzy cannot say what a particular lender will offer, because each sets its own criteria. What you can do is match the route to the need. Set-up fees and working capital suit a loan or the scheme above, while a van, a till system or specialist kit is usually better funded against the asset itself, which keeps the loan smaller and the security clear.

Keep the funding in proportion to the plan. Every pound borrowed adds a repayment that has to be met from the franchise’s income, including in the early months when income is lowest. Work backwards from what the business can comfortably repay in a slow month, not forwards from what a lender might be willing to offer.

Yes, Start Up Loans says you can apply for a Start Up Loan for a franchise business if you meet the eligibility criteria. The scheme offers unsecured personal loans from £500 to £25,000 at a fixed 7.5% a year (from 6 April 2026), and the business must have been fully trading for less than five years.

Because it is a personal loan for business purposes, you repay it personally. The scheme asks for a business plan and a cash flow forecast, and Start Up Loans’ own guidance advises talking to the franchisor to understand how their financial forecasts were calculated, which should be based on actual trading figures. Our start-up business loans guide covers the scheme in more detail.

Lenders look at the same things as for any new business loan, with the franchise agreement and the franchisor’s record as extra evidence. Each lender sets its own criteria, so the same plan can get different answers from different lenders.

• Your plan and forecast, including how the numbers were prepared and what they assume.
• Your own contribution and finances. For a new company, a lender may ask the owner for a personal guarantee.
• The franchise agreement and the franchisor’s trading record.
• Your relevant experience, and your credit history.

Our guide to how to write a business plan covers what to include, and the article on personal guarantees explains what signing one means.

Check the numbers, the contract and the franchisor before you sign or borrow, and take independent advice. Start Up Loans says it is a good idea to seek independent legal advice when deciding if starting a franchise is right for you, and to consider using a franchise solicitor to review the agreement before signing.

1. Ask how the franchisor’s financial forecasts were calculated, and whether they come from actual trading figures.
2. Speak to existing franchisees about their costs and income, in your own words and without the franchisor present.
3. Read the ongoing fees and what happens if you want to leave or sell.
4. Have a solicitor review the agreement.
5. Ask an accountant to check your forecast before you borrow against it.

The main risk is that the franchise earns less or later than planned while the repayments and ongoing fees stay fixed. You also depend on the franchisor’s brand and decisions, which you do not control.

• Ongoing fees based on sales are due whatever your profit.
• A personal loan or personal guarantee puts your own assets and credit at stake.
• Borrowing for fees and set-up costs with nothing set aside for working capital leaves little room for slow months.
• Secured finance puts the asset, and sometimes a property, at risk if you cannot repay.

If the Growth Guarantee Scheme is used for a loan, the guarantee is to the lender, and you remain 100% liable for the debt. It is not a safety net for the borrower.

Capzy is a credit broker, not a lender, and is paid by the lender. We introduce franchise buyers to lenders offering business loans and asset finance and set out what comes back so you can compare it. We do not give legal, tax or accounting advice, so use a solicitor for the franchise agreement and an accountant for the numbers.

You can check your funding options with a soft search that does not affect your credit score. A full application to a lender may involve a hard search, and any offer is subject to status and lender criteria. The lender directory shows who offers which products. Buying an existing independent business is a different route, covered in our guide to buying a business.