Franchise funding that counts royalties and remodels

In depth

What your FDD tells a lender

The FTC's Franchise Rule sets the items every disclosure document covers. A few matter most for funding: Item 6 lists other fees, including royalties; Item 7 estimates the initial investment; Item 8 covers restrictions on where you buy products and services; Item 10 describes any financing the franchisor offers; and Item 17 covers renewal, termination and transfer. Item 19 covers financial performance representations, and where your document includes figures there, they can support a lender's view of a new unit.

Have those pages ready. A lender reading Item 6 can see what comes off your top line before any payment, and Item 17 shows what the franchisor can require when you renew or sell, which can include signing a new agreement on different terms.

If the franchisor offers financing under Item 10, compare it with outside offers on total cost. Openbook Capital shows each offer's total payback, cost in dollars, payment schedule and estimated APR side by side.

SBA loans and the Franchise Directory

The SBA publishes a Franchise Directory for lenders to use in evaluating the eligibility of businesses that operate under a franchise agreement. A listing isn't an endorsement of the brand and doesn't ensure the business succeeds, but it's an early check for any SBA deal.

SBA 7(a) loans can fund a change of ownership, equipment, working capital and real estate, which covers most franchise needs: a new unit, a resale purchase or a required remodel. SBA 504 loans finance buildings and long-life equipment, but not working capital or inventory. Our SBA guide explains both.

SBA underwriting takes weeks, and franchisor approvals can add more. Start early, especially when a remodel deadline or a transfer date is fixed. If your brand isn't listed, ask the franchisor about its plans before you build an SBA timeline around it.

Multi-unit growth without stacking

A new unit takes months to reach its sales targets, and until then your existing units carry it. Short-term advances taken unit by unit can pile daily debits onto the same bank accounts, which is how multi-unit owners end up stacking without meaning to.

Plan the growth as 1 capital plan: long-term money for build-outs and equipment, a line for ramp-up gaps, and short-term funding only for short needs. If advances are already stacked, consolidation may lower the combined payment, though often by stretching the term and raising the total cost. Our stacking guide explains the trade-offs.

Lenders look at the group as a whole: a strong unit can support a new one, and a struggling unit can hold back the whole request. Keep each unit's statements clean and separate so its numbers are easy to read.