# How to Finance a Franchise

The main ways people fund a franchise, from Waypoint Franchise Advisors. Educational only — not financial advice or a promise of approval.

## Five ways franchises get funded

### SBA 7(a) loan

- **How it works:** A bank loan partially guaranteed by the Small Business Administration. The most common path for franchise financing when the brand is on the SBA Franchise Directory.
- **Best for:** Buyers with solid credit and some liquid capital for the down payment who want a long term and competitive rates.
- **Watch for:** Requires a down payment, personal guarantee, and often collateral. The brand must be SBA-eligible. Underwriting takes time.

### ROBS (401(k) rollover)

- **How it works:** Rolls eligible retirement funds into the new business without an early-withdrawal penalty or income tax, because it is a rollover, not a distribution.
- **Best for:** Buyers with substantial retirement savings who want to reduce or avoid debt and inject equity into the business.
- **Watch for:** You are putting retirement capital at business risk. Has setup and ongoing compliance requirements; use a specialist provider.

### Home equity (HELOC / cash-out)

- **How it works:** Borrows against the equity in your primary residence, either as a line of credit or a cash-out refinance.
- **Best for:** Homeowners with significant equity who want flexible, relatively low-rate access to capital.
- **Watch for:** Your home is the collateral. Rates can be variable. Borrowing against a residence raises the personal stakes.

### Securities-backed line

- **How it works:** A line of credit borrowed against a brokerage portfolio without selling the investments (also called a portfolio or pledged-asset line).
- **Best for:** Buyers with a sizable taxable investment portfolio who want liquidity without triggering capital-gains taxes.
- **Watch for:** Market drops can trigger a margin call. Rates are typically variable. Not a fit if your assets are mostly in retirement accounts.

### Franchisor financing

- **How it works:** Financing offered directly by the brand — fee deferral, reduced or waived fees for certain candidates, or in-house equipment financing.
- **Best for:** Candidates buying brands that publish financing in Item 10 of their FDD, or who qualify for incentive programs (e.g., veterans).
- **Watch for:** Less common and varies brand to brand. Always confirm the specifics in Item 10 rather than assuming.

## Common questions

### How much money do I need to finance a franchise?

It varies widely by concept. Lenders typically look at how much liquid capital you can put toward the deal and how much you need to borrow. Many lower-investment service franchises have total investments that can be reached with a relatively modest amount of liquid capital once financing is layered in, while larger build-out concepts need substantially more. The right question is not just 'how much do I have' but 'which financing method fits the total investment and my situation.'

### Can I use my 401(k) to fund a franchise without an early-withdrawal penalty?

Yes, through a structure called ROBS (Rollover for Business Startups). It lets you move eligible retirement funds into the business without triggering an early-withdrawal penalty or income tax, because it is a rollover rather than a distribution. It is a real, IRS-recognized structure, but it has compliance requirements and ongoing administration. Most people set it up through a specialist provider, not on their own.

### Are franchises eligible for SBA loans?

Many are. The SBA maintains a Franchise Directory, and a brand listed there is generally eligible for SBA-backed financing such as the 7(a) program, assuming you personally qualify. Eligibility rules and the directory process have changed in recent years, and not every brand is listed, so confirm a specific brand's current status before you assume an SBA loan is on the table.

### How much of the total investment can I finance?

It depends on the method and the lender. SBA loans often require a down payment (commonly a meaningful percentage of the project), so you are financing the majority but not all. ROBS can fund a larger share because it uses your own retirement capital. Home equity and securities-backed lines depend on the equity or portfolio you can borrow against. A consultant or lender can model the mix once they know the concept's total investment.

### Do franchisors offer their own financing?

Some do, in the form of fee deferral, reduced or waived franchise fees for certain candidates (veterans, for example), or in-house equipment financing. It is less common than third-party financing and varies brand to brand. Item 10 of a brand's Franchise Disclosure Document spells out exactly what financing, if any, the franchisor offers.