Limited capital shouldn’t keep you from franchise ownership. Multiple financing paths exist depending on your situation and goals, here are the most common ways franchise buyers fund their investment.
New as of July 4, 2026: The SBA raised the combined borrowing limit across the 7(a) and 504 programs from $5 million to $10 million. Individual caps didn’t change, 7(a) is still $5 million. But you can now carry up to $5 million in 7(a) and up to $5 million in 504 at the same time. Previously they shared a single $5 million ceiling. If multi-unit growth or real estate is in your plan, this changes your math.
Below are the current numbers, because the numbers are the point. A 10% down payment and a 25% down payment are different businesses. Rates current as of August 2026.
Ways to Fund Your Franchise
Most franchise buyers combine more than one of these options to put together a funding plan that fits their budget.
SBA Loans
Small Business Administration-backed loans are one of the most common ways to finance a franchise, often requiring a smaller down payment than a conventional bank loan.
ROBS (Rollover for Business Startups)
This option lets you roll over funds from an eligible retirement account into your new business without early withdrawal penalties or taking on debt.
Home Equity Options
Depending on your financial situation and risk tolerance, tapping into equity you’ve built in your home can be another source of funding.
Veteran Discounts & Financing Incentives
Many franchise brands offer discounted franchise fees or dedicated financing support specifically for veteran-owned businesses.
Equipment Financing
Vehicles, kitchen equipment, machinery and other hard assets can be financed or leased on their own, with the equipment serving as the collateral. It keeps that cost off your main loan and frees up cash for build-out and working capital.
Unsecured Loans
Unsecured term loans and business lines of credit require no collateral and can fund quickly, but carry higher rates and shorter terms. Most buyers use them to cover working capital or bridge a gap rather than to fund the whole investment.
Securities-Backed Line of Credit
If you hold a taxable brokerage account, some banks will lend against it without you selling anything, which keeps your positions intact and avoids triggering capital gains. It is fast and cheaper than unsecured debt, and it carries a risk the others do not: if the market falls far enough, the lender can make you add cash or sell.
The right funding plan depends on your personal financial picture. We’ll help you understand your options and connect you with trusted lenders before you commit to anything.
SBA 7(a), current rates
A 7(a) loan tops out at $5 million and covers the franchise fee, build-out, equipment, inventory and working capital.
| Loan size | Max variable rate | Max fixed rate |
|---|---|---|
| $25,000 or less | 13.25% | 14.75% |
| $25,001, $50,000 | 13.25% | 13.75% |
| $50,001, $250,000 | 12.75% | 12.75% |
| $250,001, $350,000 | 11.25% | 11.75% |
| $350,001 and above | 9.75% | 11.75% |
Notice the shape of that table: the rate cap falls as the loan gets larger. A $400,000 loan can carry a materially lower rate than a $200,000 one, worth knowing before you pick a brand, because the cheaper franchise isn’t automatically the cheaper deal.
The 10% rule, and the seller-note trap
Since June 1, 2025 the SBA has required at least a 10% equity injection from the buyer on both startups and changes of ownership. Treat that as the floor rather than the norm, lenders routinely ask 20% to 30% on unproven concepts.
The change that catches people: a seller note now only counts toward your injection if it’s on full standby. No principal, no interest, for the entire life of the loan, and it can’t exceed 50% of your total injection. If someone tells you the seller will simply carry your down payment, ask whether they’ve read the current SOP.
Is your brand in the SBA Franchise Directory?
The SBA reinstated its Franchise Directory effective June 1, 2025. Listed brands receive an SBA Franchise Identifier Code, and lenders look for it. Listing is free to franchisors, and the old SBA Addendum (Form 2462) is no longer required, brands simply certify in writing that they qualify.
Check this before you fall in love with a brand. A franchisor that hasn’t bothered to get listed has told you something about how much it cares whether you can get financed.
New to SBA lending? Our step-by-step guide to how an SBA loan for franchise ownership actually gets approved covers what underwriters check, what documentation to have ready, and how to choose a lender.
ROBS, what it actually costs
A Rollover for Business Startups moves retirement savings into your franchise without early-withdrawal penalties or immediate tax. It requires forming a new C corporation. That structure is what makes the transaction legal, not an optional extra. Most providers want at least $50,000 in rollable funds.
Budget roughly $4,000, $6,000 to set up and $1,200, $2,400 a year to administer, plus C-corporation tax preparation of $1,000, $3,000 annually and an independent yearly valuation of your shares. You’ll also file Form 5500, pay yourself a reasonable salary, and stay clear of prohibited-transaction rules.
And the part that belongs in plain sight rather than a footnote: ROBS converts retirement savings into equity. If the business fails, that money is gone. Not down, gone. There’s no market recovery for a closed location. That’s not an argument against it; plenty of successful owners funded this way. It’s an argument for deciding in advance what portion you’re willing to convert, and holding that line.
ROBS is one route among several. For a side-by-side comparison of SBA lending, ROBS, franchisor financing, third-party lenders, and personal capital, see franchise financing options.
Veteran incentives, what they’re actually worth
Hundreds of brands participate in the IFA’s VetFran program, typically offering 10% to 25% off the initial franchise fee, occasionally up to 50%. Eligibility usually extends to active duty, reservists, National Guard and often spouses, but each franchisor sets its own terms.
One correction to outdated advice: the old SBA Veterans Advantage fee waiver is no longer a veteran-specific edge. The SBA eliminated the upfront guarantee fee on all 7(a) loans of $1 million or less.
For the full picture on what is available to veterans and how to claim it, see veteran discounts and franchise incentives.
Securities-backed lines of credit, what they actually risk
A securities-backed line of credit, sometimes called an SBLOC or a pledged asset line, lets you borrow against the holdings in a taxable brokerage account without selling them. The portfolio stays invested and stays yours. Retirement accounts do not qualify for this, that is what ROBS is for.
Buyers reach for it because not selling means no capital gains event, which for someone sitting on appreciated stock can be the difference between funding a franchise and handing a large piece of the down payment to the IRS. Approval tends to be fast, because the lender is underwriting the collateral rather than your business plan. There is usually no origination fee, most lines are interest-only with no fixed repayment schedule, and the rate is variable and generally well below unsecured business debt.
How much you can draw depends on what you hold. Treasuries and investment-grade bonds support more borrowing than a concentrated position in one company, and some holdings are excluded entirely. Your brokerage sets that advance rate, so get the number in writing before you build a funding plan around it.
Here is the part that gets skipped. The line is secured by assets whose value moves. If the market falls far enough, the lender issues a maintenance call, and you either add cash within days or they sell your positions to cover it. They decide what gets sold and when. That is bad on its own. It is worse because the downturn that triggers the call is often the same downturn that has slowed your new franchise, so you would be forced to sell at the bottom in the exact month the business is producing least. Two risks that look separate turn out to be one risk.
Most of these lines are also non-purpose loans, meaning the proceeds cannot be used to buy more securities. Funding a business is normally an allowed use, but the agreement governs and some carry further restrictions. Get written confirmation that a franchise investment qualifies before you sign anything.
If you intend to pair this with an SBA 7(a) loan, do not assume the borrowed money counts toward your required equity injection. Under current SBA rules borrowed funds can qualify, but the lender has to document a repayment source outside the business’s cash flow, and the debt may need to sit on full standby for the life of the SBA loan. Some lenders are comfortable with that and some are not. Ask your SBA lender specifically, and ask early, because the answer changes how much actual cash you need.
This suits a narrow group: someone with a substantial and genuinely diversified taxable portfolio, who can service the interest out of income unrelated to the franchise, and who could absorb a call without being forced to sell. It suits almost nobody else. Talk to your own financial advisor and tax professional about whether the interest is deductible in your situation and about how much of your net worth ends up riding on a single outcome. I am a franchise consultant, not a financial advisor, and nothing here is a recommendation about your portfolio.
Run your own numbers
This shows your result before it asks you for anything. Use it to find your ceiling, knowing that before you look at brands is what keeps you out of deals you can’t fund.
What can you actually fund?
Five questions. Nothing is sent anywhere, this runs entirely in your browser.
What most buyers actually do
Almost nobody uses one source. A common stack: ROBS or cash for the equity injection, an SBA 7(a) loan for the fee, build-out and equipment, and a working-capital cushion sized to the brand’s real ramp rather than the brand’s projection.
Getting that mix right is most of the job. Call 925-705-0193 and we’ll put real numbers to your situation, free, English or Español.
Related reading: what’s really included in a franchise’s total investment, low-cost franchise opportunities, and how much franchise owners make.
Franchise funding: frequently asked questions
Rates and SBA rules current as of August 2026.
How much money do I need to buy a franchise?
Plan on covering at least 20% to 30% of total project cost out of pocket, plus reserves. The SBA’s floor is a 10% equity injection, but lenders routinely ask for more on startup and franchise deals, and the strength of your credit is what moves that number. On a $500,000 project, that’s roughly $100,000 to $150,000 of your own capital, which can come from cash, retirement funds, home equity, or a combination.
Can I use my 401(k) to buy a franchise without paying a penalty?
Yes, through a structure called ROBS, Rollover for Business Startups. You form a new C corporation, that corporation sponsors a retirement plan, and the plan buys stock in the corporation. Done correctly, there’s no early-withdrawal penalty and no immediate tax. Most providers want at least $50,000 in rollable funds. The trade-off is real: those dollars become equity in your business, so if the business fails, the money is gone. There’s no market recovery for a closed store.
What does ROBS actually cost?
Budget roughly $4,000 to $6,000 to set up and $1,200 to $2,400 a year to administer, with first-year totals commonly landing between $5,500 and $9,500. On top of that you’ll have C-corporation tax preparation ($1,000 to $3,000 a year) and registered agent fees. Ongoing compliance includes filing Form 5500, obtaining an independent annual valuation of your shares, paying yourself a reasonable salary, and staying clear of prohibited-transaction rules.
What’s the minimum down payment on an SBA franchise loan?
Under SOP 50 10 8, effective June 1, 2025, the SBA requires an equity injection of at least 10% on both startups and changes of ownership. Treat that as a floor rather than a target. Most lenders ask 20% to 30% depending on the concept and your credit.
Can a seller note count as my down payment?
Only under narrow conditions now. A seller note counts toward your equity injection only if it stays on full standby. No principal and no interest paid, for the entire life of the SBA loan, and it can’t exceed 50% of your total injection. If someone tells you the seller will simply carry your down payment, ask whether they’ve read the current SOP.
What are SBA 7(a) interest rates right now?
With prime at 6.75% as of August 2026, maximum variable 7(a) rates run 13.25% on loans of $50,000 or less, 12.75% from $50,001 to $250,000, 11.25% from $250,001 to $350,000, and 9.75% above $350,000. Those are ceilings, not quotes, most borrowers price below them. Note the shape: the cap falls as the loan gets larger, so a bigger loan can carry a lower rate than a smaller one.
How much can I borrow through the SBA?
A single 7(a) loan tops out at $5 million. As of July 4, 2026, the SBA doubled the combined ceiling across programs: you can now carry up to $5 million in 7(a) and up to $5 million in 504 at the same time, for $10 million total. Previously the two programs shared one $5 million limit. If real estate or multi-unit development is part of your plan, that pairing is worth structuring deliberately.
What is the SBA Franchise Directory, and why does it matter?
It’s the SBA’s list of franchise brands whose agreements meet SBA eligibility standards. It was reinstated effective June 1, 2025. Listed brands receive an SBA Franchise Identifier Code, and lenders look for it during underwriting. Listing is free to franchisors, and the old SBA Addendum (Form 2462) is no longer required, brands simply certify in writing that they qualify. Check the directory before you get attached to a brand. A franchisor that hasn’t bothered to get listed has told you something about how much it cares whether you can get financed.
What credit score do I need for a franchise loan?
Most SBA lenders want to see 680 or better, and 700-plus opens the widest set of options at the most favorable down-payment terms. Below roughly 620, approval is unlikely regardless of how much you put down. If that’s where you are today, repairing credit first is usually worth more than any other move. And it’s typically a six-to-twelve-month project, not a permanent condition.
Are there franchise discounts for veterans?
Yes. Hundreds of brands participate in the International Franchise Association’s VetFran program, typically offering 10% to 25% off the initial franchise fee, and occasionally up to 50%. Eligibility often extends to active duty, reservists, National Guard, and spouses, but each franchisor sets its own terms. One correction to outdated advice: the old SBA veteran fee waiver is no longer a veteran-specific advantage, because the SBA eliminated the upfront guarantee fee on all 7(a) loans of $1 million or less.
Can I use home equity to fund a franchise?
You can, and it’s often the cheapest capital available to a homeowner. It’s also the most personally exposed, because your home sits behind the business. It works well as one layer of a funding stack. It should rarely be the entire stack.
How long does it take to fund and open a franchise?
Six to twelve months is typical from first conversation to open doors. That window includes brand discovery, review of the Franchise Disclosure Document, the mandatory 14-day disclosure waiting period, lender underwriting, site selection, and build-out. Moving quickly is fine. Skipping validation is what costs people money.
Do I pay you anything?
No. Franchise consulting through What Franchise To Buy is free to you. Compensation comes from the franchisor when a placement is made, similar to how a real estate agent is paid. And the franchise fee you’d pay is the same whether you work with a consultant or go direct.
This information is general in nature and is not financial, tax, or legal advice, nor a loan offer or commitment to lend. Franchise ownership involves risk and individual results vary. Verify all figures with a qualified lender, CPA, and franchise attorney before acting.
This page is general information, not financial, tax or legal advice, and not a loan offer. Verify all figures with a qualified lender, CPA and franchise attorney before acting.
