How to Start a Franchise Business in 10 Practical Steps

The franchise industry is on track to exceed $921 billion in economic output in 2026, with more than 845,000 franchise establishments operating across the United States. For aspiring business owners, buying a franchise can be one of the most reliable paths to profitability, but not all franchises are created equal. Some generate millions in annual revenue with strong owner earnings, while others struggle to break even.

At Fundwell, we help franchise buyers secure the financing they need to invest in proven business models. This guide breaks down the most profitable franchises to own right now, organized by industry, investment level, and the metrics that actually matter for your bottom line.

What Makes a Franchise Profitable

Before diving into specific franchise brands, it helps to understand what "profitable" actually means in the franchise world. A franchise with $4 million in annual revenue might sound impressive, but if operating costs eat up 95% of that number, the owner's take-home could be surprisingly modest.

Revenue Versus Owner Earnings

Average unit volume (AUV) is the most commonly cited metric in franchise profitability discussions. It represents the average annual revenue generated by a single franchise location. However, AUV does not equal profit. Owner earnings are what remains after subtracting all expenses from revenue. Those expenses include the following:

• Cost of goods sold (inventory, raw materials, supplies)
• Labor costs (wages, benefits, payroll taxes)
• Occupancy costs (rent, utilities, maintenance)
• Royalty fees (typically 4% to 8% of gross revenue)
• Marketing fees (typically 1% to 3% of gross revenue)
• Debt service (loan payments if you financed the purchase)

A franchise with lower AUV but higher margins can actually put more money in your pocket than a high-revenue brand with razor-thin margins. When evaluating profitability, always look beyond the top-line revenue number.

Key Metrics That Signal Profitability

Several financial metrics can help you compare franchise opportunities effectively. Here are the most important ones to track:

• Return on investment (ROI): Net profit divided by total investment, expressed as a percentage. A strong franchise ROI typically falls between 15% and 25% annually.
• Gross profit margin: Revenue minus cost of goods sold, divided by revenue. Higher margins mean more room to cover operating expenses and still generate profit.
• Sales-to-investment ratio: Total annual revenue divided by initial investment. A ratio above 2:1 is generally considered strong for franchises.
• Break-even timeline: How long it takes to recoup your initial investment through accumulated profits. Most franchises break even within 12 to 36 months, depending on the industry and investment level.

Why Item 19 of the FDD Matters

The Franchise Disclosure Document (FDD) is a legal document that every franchisor must provide to prospective buyers under the FTC's Franchise Rule. It contains 23 items of required information, but Item 19 is the one that matters most for evaluating profitability.

Item 19, called "Financial Performance Representations," is where franchisors can disclose actual financial performance data from existing franchise locations. This may include average revenue, median revenue, revenue by quartile, and sometimes even profit margins or owner earnings. Not every franchisor includes Item 19 in their FDD. When a franchise chooses not to disclose this information, consider it a yellow flag worth investigating further.

Most Profitable Franchise Industries

Franchise profitability varies significantly by industry. Some sectors offer high revenue with tight margins, while others deliver lower revenue with much stronger owner earnings. Here are the industries that consistently produce the most profitable franchise opportunities.

Quick-Service Restaurants

Quick-service restaurants remain the highest-revenue franchise category in the United States. The U.S. QSR market is valued at over $447 billion and continues to grow as consumers prioritize convenience and affordability.

Chick-fil-A leads the pack with an average unit volume of approximately $9.3 million per location, making it the highest-grossing restaurant franchise per unit in the country. McDonald's franchised locations average roughly $3.97 million in annual sales, and Raising Cane's has quickly climbed the ranks with strong per-unit performance driven by a simplified menu.

The trade-off with QSR franchises is the investment required. McDonald's requires at least $500,000 in liquid assets just to apply, with total investments ranging from $1 million to $2.2 million. QSR margins can also be tighter than service-based franchises due to food costs, labor, and real estate expenses. If you are considering a restaurant franchise investment, make sure you understand the full cost picture before committing.

Home Services and Cleaning

Home services and cleaning franchises consistently rank among the most profitable franchise categories relative to investment. These businesses benefit from recurring revenue, low overhead, and the ability to scale by adding service teams rather than building new locations.

Servpro, which specializes in disaster restoration and cleaning, requires an initial investment of $241,000 to $302,000 and has built a strong reputation for consistent demand. The Maids, a residential cleaning franchise, has reported average franchise revenue of approximately $1.1 million with initial investments starting under $125,000. Mosquito Joe and similar home service brands offer even lower entry points with fast break-even timelines.

What makes this category attractive is the margin structure. Without the food costs, heavy equipment, or large retail spaces that other industries require, home service franchise owners often keep a larger percentage of their revenue as profit.

Fitness and Wellness

Fitness franchises benefit from a membership-based revenue model that creates predictable, recurring cash flow. Members pay monthly regardless of how often they visit, which provides financial stability that most other franchise categories cannot match.

Planet Fitness has become one of the most recognizable names in the space, with average franchise sales of approximately $1.83 million per location and an investment range of $1.5 million to $5.15 million. Orangetheory Fitness operates with smaller class sizes and premium pricing, while Anytime Fitness offers a 24/7 model with lower staffing requirements. For those exploring fitness industry financing, Fundwell offers lending solutions designed for businesses with recurring revenue models.

Senior Care and Home Health

The senior care industry is one of the fastest-growing franchise sectors, driven by an aging U.S. population that increasingly prefers at-home care over institutional settings. Industry analysts project the global home care services market will reach nearly $950 billion by 2030.

Home Instead is one of the most established brands in this space, with average sales of approximately $2.39 million per franchise and a relatively modest investment range of $98,000 to $125,000. That sales-to-investment ratio is among the strongest in all of franchising. Other strong performers in this category include BrightSpring Health Services and Interim HealthCare, both of which benefit from the combination of consistent demand and essential service status.

Automotive Services

Vehicles in the United States are staying on the road longer than ever, with the average age of cars and light trucks now exceeding 12 years. That trend translates directly into demand for maintenance and repair services, making automotive franchises a strong long-term bet.

Christian Brothers Automotive stands out with average sales of approximately $2.80 million per location and a reputation for high customer satisfaction. The initial investment ranges from $530,000 to $645,000. Meineke and Midas offer lower entry points for investors who want automotive exposure without the premium investment, and both benefit from national brand recognition and repeat service demand.

Business Services and Shipping

Business services franchises may not generate the headlines that restaurant brands do, but they often deliver strong profitability with less operational complexity. These franchises serve both consumers and businesses, providing essential services that remain in demand regardless of economic conditions.

The UPS Store franchise averages approximately $721,000 in annual sales with initial investments ranging from $209,000 to $496,000. FASTSIGNS, which focuses on custom signage and visual communications for businesses, reports average unit volumes of approximately $786,000 to $1 million. Both brands benefit from relatively simple operations, manageable staffing requirements, and steady demand.

Real Estate and Property Management

Real estate franchises generate revenue through service fees, commissions, and ongoing property management contracts. Keller Williams and RE/MAX remain dominant forces in residential real estate brokerage, while property management franchises like Real Property Management offer recurring monthly income from managed properties.

The profitability of real estate franchises can fluctuate with housing market conditions, but the service-based nature of the business means overhead stays relatively low. For franchisees with real estate experience or local market knowledge, these brands can deliver strong returns with moderate initial investments.

Best Low-Cost Franchises With High Returns

Not every profitable franchise requires a six-figure investment. Some of the best returns in franchising come from brands with modest startup costs and business models that can generate revenue quickly.

Under $50,000 to Start

Dream Vacations leads this category with a total investment as low as $2,000 to $21,000, making it one of the most accessible franchise opportunities available. As a home-based travel agency franchise, there are no brick-and-mortar costs, and franchisees earn commissions on travel bookings. Cruise Planners operates a similar model with a low-cost entry point and strong franchisor support.

Jazzercise offers franchise opportunities starting under $40,000, with a proven fitness model that has been operating for over five decades. These ultra-low-cost franchises may not generate the highest raw revenue, but their profitability per dollar invested can be exceptional.

$50,000 to $150,000 to Start

JAN-PRO, a commercial cleaning franchise, offers multiple ownership tiers with investments starting around $50,000 to $60,000. Commercial cleaning provides recurring contract revenue from business clients, which creates a stable income base. Stratus Building Solutions operates a similar model with strong franchisee satisfaction ratings.

Home Instead's investment range of $98,000 to $125,000 also falls in this tier, delivering one of the strongest sales-to-investment ratios in all of franchising at roughly 19:1. For buyers looking to maximize returns relative to their initial capital outlay, this investment range offers some of the most compelling opportunities. Fundwell's small business lending solutions can help bridge the gap if you need financing for investments in this range.

What Low-Cost Franchises Get Right

Low-cost franchises tend to share several characteristics that drive their profitability. They typically operate in the following ways:

• Service-based models with no inventory or minimal physical infrastructure
• Home-based or mobile operations that eliminate real estate costs
• Recurring revenue from contracts, memberships, or repeat customers
• Lean staffing that keeps labor costs manageable
• Fast break-even timelines, often within 6 to 18 months

The trade-off is that lower-investment franchises typically have a lower revenue ceiling than premium brands. However, the return on investment as a percentage of capital deployed can be significantly higher than what a $1 million restaurant franchise delivers.

The following table compares some of the top franchise opportunities across investment tiers:

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How to Evaluate Franchise Profitability Before You Buy

Knowing which franchises are profitable is only half the equation. The other half is learning how to evaluate whether a specific franchise opportunity will be profitable for you, in your market, with your financial profile.

Read the Franchise Disclosure Document

Every franchisor is required by the Federal Trade Commission to provide a Franchise Disclosure Document before you sign any agreement or pay any fees. The FDD contains 23 items of legally required information, but four items deserve the closest attention when evaluating profitability.

• Item 5 (Initial Fees): The franchise fee and any other upfront payments required
• Item 6 (Other Fees): Ongoing royalty percentages, marketing fund contributions, technology fees, and other recurring costs
• Item 7 (Estimated Initial Investment): The full range of startup costs including equipment, build-out, inventory, insurance, and working capital
• Item 19 (Financial Performance Representations): Actual revenue and sometimes profit data from existing franchise locations

If a franchisor does not include Item 19 in their FDD, it does not automatically mean the franchise is unprofitable. Some strong brands choose not to disclose this data. However, the absence of financial performance information means you will need to do more independent research to understand what realistic earnings look like.

Talk to Existing Franchisees

Item 20 of the FDD lists the names and contact information of current and former franchisees. This is arguably the most underused due diligence tool available to franchise buyers. Calling existing owners and asking direct questions about their experience can reveal information that no disclosure document captures.

Questions worth asking include how long it took to break even, what the actual owner take-home looks like compared to what was projected, whether the franchisor delivers on its training and support promises, and what they would do differently if they were starting over. Former franchisees listed in the FDD can be especially candid about challenges they faced.

Analyze Local Market Conditions

National franchise performance averages can be misleading because they do not account for local factors that heavily influence profitability. The same franchise brand can perform very differently depending on population density, local competition, demographic fit, and real estate costs in your specific market.

Before investing, research how many competing locations already operate in your target area, whether the local population matches the franchise's ideal customer profile, and what commercial lease rates look like compared to the national average. A franchise that thrives in suburban markets may struggle in dense urban areas, and vice versa.

Watch for Red Flags

Not every franchise opportunity is what it appears to be. Several warning signs should prompt you to proceed with caution or walk away entirely. Keep the following red flags in mind:

• No Item 19 disclosure combined with aggressive earnings claims from sales representatives
• High franchisee turnover visible in Item 20 (many closures or transfers in recent years)
• Excessive litigation listed in Item 3 (lawsuits between the franchisor and franchisees)
• Pressure tactics pushing you to sign quickly or skip due diligence
• Unusually low franchise fees paired with hidden costs buried in Items 6 and 7

According to Bureau of Labor Statistics data, approximately 50% of all small businesses survive to the five-year mark. Franchises generally outperform that average due to their proven business models, but thorough due diligence is still the single best way to protect your investment.

How to Finance a Profitable Franchise

Once you have identified a franchise opportunity that meets your profitability criteria, the next step is figuring out how to fund it. Most franchise buyers use some combination of personal capital and external financing to cover their total investment.

The most common franchise financing options include SBA loans (which offer competitive rates and long repayment terms for qualifying buyers), conventional bank loans, alternative business loans for buyers who need faster approval or have less-than-perfect credit, equipment financing for franchises with significant equipment needs, business lines of credit for working capital, and ROBS (Rollovers as Business Startups) for buyers who want to use retirement funds.

Fundwell helps franchise buyers compare multiple financing options through a single application. Whether you qualify for an SBA loan, need a flexible business line of credit for working capital, or are looking for revenue-based financing, Fundwell connects you with the right lending solution based on your profile. With fast approvals, transparent terms, and real human support, Fundwell has helped deliver over $1 billion in funding to small businesses across the country.

For a complete breakdown of every franchise financing option, including qualification requirements, typical rates, and application steps, read our full guide on franchise financing.

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Frequently Asked Questions About Profitable Franchises

Which franchise makes the most money?

Chick-fil-A generates the highest average revenue per location of any franchise in the United States, with an AUV of approximately $9.3 million. However, Chick-fil-A uses a unique operator model where the company retains ownership of each location and franchisees pay only a $10,000 initial fee but do not build equity. For traditional franchise ownership, McDonald's ($3.97 million AUV), Christian Brothers Automotive ($2.80 million), and Home Instead ($2.39 million) are among the highest earners.

What is the cheapest franchise to own that is profitable?

Dream Vacations offers one of the lowest total investments in franchising at $2,000 to $21,000 and operates as a home-based travel agency. Cruise Planners is another low-cost option in the travel space. For slightly higher budgets, JAN-PRO and Stratus Building Solutions offer commercial cleaning franchise opportunities starting around $50,000 with recurring contract revenue. These low-cost franchises may not generate the highest raw revenue, but their ROI as a percentage of investment can be very strong.

How long does it take for a franchise to become profitable?

Most franchises reach break-even within 12 to 36 months, depending on the industry, investment level, location, and how effectively the owner manages operations. Service-based franchises with lower overhead (like cleaning or home care) tend to reach profitability faster than capital-intensive franchises (like restaurants or fitness centers). The franchisor's Item 19 data and conversations with existing franchisees are the best sources for realistic timeline expectations.

Can you make a million dollars owning a franchise?

Yes, but it typically requires owning multiple units or investing in a high-AUV brand. Single-unit franchise owners in categories like QSR or senior care can generate strong six-figure incomes, and multi-unit operators who own several locations of the same brand often reach seven-figure owner earnings. Building to that level usually takes several years of successful single-unit operation before expanding, along with the operational capacity and financing to support growth. Fundwell's lending marketplace can help existing franchise owners secure capital for expansion.

What franchise has the highest profit margin?

Service-based franchises generally have higher profit margins than product-based or food-based franchises because they carry lower costs of goods sold and often require less physical infrastructure. Home care franchises, commercial cleaning operations, and business consulting services frequently report gross margins above 40% to 50%. By contrast, restaurant franchises may have gross margins of 25% to 35% due to food and labor costs. High margins do not always mean high total profit, however, since lower-margin franchises often compensate with significantly higher revenue volumes.

Buying a franchise is one of the most popular paths to business ownership in the United States. According to the International Franchise Association's 2026 Economic Outlook, the franchise sector is expected to grow to over 845,000 establishments this year, generating more than $921 billion in output. But most aspiring franchisees face the same challenge: figuring out how to pay for it.

Whether you're eyeing a fast-food chain, a fitness studio, or a home services brand, the total investment can range from under $50,000 to well over $1 million. The good news is that multiple financing options exist for nearly every budget and credit profile. At Fundwell, we help franchise buyers navigate their financing options and secure the capital they need to get started.

This guide breaks down the best franchise financing options available, what it actually costs to buy a franchise, and exactly what you need to qualify.

What Is Franchise Financing

Franchise financing refers to any loan, line of credit, or funding method used to cover the costs of purchasing and operating a franchise. Unlike starting a business from scratch, buying a franchise involves specific fees paid to the franchisor, along with buildout costs, equipment, inventory, and working capital to keep the business running until it becomes profitable.

Most franchise buyers cannot cover these costs out of pocket. Lenders who specialize in franchise financing understand this model and evaluate applications based on both the borrower's financial profile and the franchise brand's track record. Franchises with strong unit economics and proven systems tend to get approved more easily than unproven independent startups.

One important distinction is that not all franchises are eligible for every type of financing. The SBA Franchise Directory determines which brands qualify for government-backed loans, and lenders often reference this list during their underwriting process.

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How Much Does It Cost to Buy a Franchise

Before you explore financing options, you need a clear picture of how much capital you'll actually need. Franchise costs vary significantly depending on the brand, industry, and location.

Initial Franchise Fees

Every franchisor charges an upfront franchise fee for the right to operate under their brand. This fee typically ranges from $10,000 to $100,000 or more and covers your license to use the brand name, initial training programs, and access to the franchisor's operating systems. Some well-known brands like McDonald's or Hilton charge premium fees, while service-based franchises like cleaning or tutoring companies may charge significantly less.

Buildout, Equipment, and Real Estate

For brick-and-mortar franchises, buildout and real estate costs often represent the largest portion of the total investment. This includes leasehold improvements, signage, furniture, kitchen equipment, point-of-sale systems, and technology infrastructure. A restaurant franchise might require $250,000 or more in buildout alone, while a mobile or home-based franchise could require minimal physical investment.

Working Capital and Ongoing Costs

Lenders and franchisors both expect you to have enough working capital to cover operating expenses for the first 6 to 12 months. This includes payroll, rent, utilities, insurance, marketing contributions, and royalty fees paid to the franchisor. Royalty fees typically range from 4% to 8% of gross revenue, and marketing fund contributions often add another 1% to 3%. Underestimating these ongoing costs is one of the most common mistakes new franchisees make.

Total Investment Ranges by Franchise Tier

The following table provides a general breakdown of total investment ranges by franchise category. Your actual costs will depend on your specific brand, location, and buildout requirements.

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Best Franchise Financing Options

There is no single "best" way to finance a franchise. The right option depends on how much you need, your credit profile, how quickly you need funding, and whether your franchise is SBA-eligible. Here are the most common franchise financing options available today.

SBA 7(a) Loans

SBA 7(a) loans are the most popular choice for franchise financing. Backed by the U.S. Small Business Administration, these loans offer amounts up to $5 million with repayment terms of 10 to 25 years and competitive interest rates. The SBA guarantee reduces risk for lenders, which often translates to lower down payments and better terms for borrowers. The catch is that your franchise must appear on the SBA Franchise Directory, and the application process can take several weeks to several months. If you're considering this route, Fundwell's SBA loan program can help streamline the process.

SBA 504 Loans

SBA 504 loans are designed for major fixed-asset purchases like commercial real estate, heavy equipment, and large-scale renovations. They offer fixed interest rates and long repayment terms (up to 25 years for real estate). However, 504 loans cannot be used to cover franchise fees, working capital, or inventory. They work best as a complement to other financing when your franchise requires significant real estate investment.

Conventional Bank Loans

Traditional bank loans offer straightforward financing without the SBA's bureaucratic process. Approval timelines may be faster than SBA loans, but banks typically require stronger credit scores (often 700+), more collateral, and a proven track record. If you have excellent credit and an established banking relationship, a conventional loan can be a solid option. Just be prepared for potentially higher down payment requirements compared to SBA-backed financing.

Alternative and Online Lenders

When speed matters or your credit profile doesn't fit traditional lending criteria, alternative lenders fill an important gap. These lenders, including Fundwell, offer faster approval timelines, more flexible qualification requirements, and a streamlined application process. Interest rates may be higher than SBA or bank loans, but you could receive funding in days rather than months. For franchise buyers working against a timeline or dealing with less-than-perfect credit, alternative lending can be the difference between securing your franchise and losing the opportunity.

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Franchisor Financing Programs

Some franchisors offer direct financing or have partnerships with preferred lenders who specialize in their brand. These programs can simplify the process because the lender already understands the franchise's financial model and success rates. Not all franchisors offer this option, so check your Franchise Disclosure Document (FDD) for details on any financing assistance the franchisor provides.

Equipment Financing

If your franchise requires expensive equipment (think restaurant kitchen systems, commercial vehicles, or specialized machinery), equipment financing lets you spread that cost over time while using the equipment itself as collateral. This means you may qualify even with limited credit history, since the lender's risk is secured by the asset. Fundwell offers small business lending solutions that can cover equipment and other startup costs under one application.

ROBS (Rollovers as Business Startups)

A Rollover as Business Startup, or ROBS, allows you to use funds from your 401(k) or IRA to invest in your franchise without paying early withdrawal penalties or taxes. The process involves creating a C-corporation, establishing a retirement plan under that corporation, and rolling your existing retirement funds into the new plan, which then invests in the business. ROBS is not a loan, so there are no monthly payments or interest charges. However, you are putting your retirement savings at risk, and the setup requires careful compliance with IRS rules. Working with an experienced ROBS provider is essential.

Business Lines of Credit

A business line of credit gives you revolving access to capital that you can draw from as needed, making it ideal for covering working capital, inventory restocking, and unexpected expenses during the early months of franchise operations. Unlike a term loan, you only pay interest on what you actually use. Many franchise owners combine a term loan for the initial purchase with a line of credit for ongoing operational flexibility.

The following table compares these financing options side by side to help you identify which ones fit your situation.

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How to Qualify for a Franchise Loan

Understanding what lenders look for can save you time and improve your chances of approval. While every lender has its own criteria, most evaluate a combination of the following factors.

Credit Score Requirements

Your personal credit score is one of the first things lenders check. For SBA loans, most lenders look for a minimum score of 680, though some may accept scores in the 650 range with other strong compensating factors. Conventional banks typically want 700 or higher. Alternative lenders like Fundwell may work with scores as low as 500, making them a viable option for franchise buyers who don't meet traditional credit thresholds. If your score needs improvement, it may be worth spending a few months addressing outstanding debts and correcting errors on your credit report before applying.

Net Worth and Down Payment Expectations

Lenders want to see that you have skin in the game. For SBA loans, expect to contribute an equity injection of 10% to 20% of the total project cost, though some lenders may require up to 30%. This means for a $300,000 franchise investment, you may need $30,000 to $90,000 in available capital. Beyond the down payment, many lenders also evaluate your overall net worth and liquid assets to ensure you have a financial cushion beyond the initial investment.

Business Experience and Franchise Track Record

While you don't necessarily need direct industry experience, it helps. Lenders feel more comfortable when borrowers have management experience, relevant industry background, or a strong professional resume. Equally important is the franchise brand itself. Established franchises with years of performance data, high franchisee success rates, and strong brand recognition are easier to get financed than newer or unproven concepts. The franchise's Item 19 in its FDD (Financial Performance Representations) can be a powerful tool in your loan application.

Required Documentation

Having your documents ready before you apply can significantly speed up the process. Most lenders will ask for the following items.

• Personal financial statement showing assets, liabilities, and net worth
• Two to three years of personal tax returns
• Business plan with financial projections specific to the franchise
• Franchise Disclosure Document (FDD) from the franchisor
• Proof of liquid capital (bank statements, investment accounts)
• Resume highlighting relevant business or management experience
• Signed franchise agreement or letter of intent

How to Apply for Franchise Financing

Once you understand the costs and your qualification profile, the application process becomes much more manageable. Here is a step-by-step approach to securing your franchise financing.

1. Determine How Much You Need

Start with the total investment listed in your franchise's FDD. Subtract whatever personal capital you plan to contribute, and the difference is your financing gap. Be sure to include working capital for the first 6 to 12 months of operations, not just the initial franchise fee and buildout costs. Underestimating your capital needs is one of the fastest ways to create cash flow problems after opening.

2. Check If Your Franchise Is SBA-Approved

If you're considering an SBA loan, verify that your franchise brand is listed on the SBA Franchise Directory. This directory confirms that the franchise agreement meets SBA requirements. If your brand isn't listed, the lender will need to submit the franchise agreement for review, which can add weeks to the process. As of early 2026, the SBA has extended the re-certification deadline for previously listed brands, so it's worth double-checking the current status. If your franchise isn't SBA-eligible, Fundwell and other alternative lending paths remain available.

3. Compare Lenders and Loan Types

Don't apply to the first lender you find. Use the comparison table above to match your profile (credit score, available capital, timeline) to the right loan type. Then research lenders who specialize in that category. According to the Federal Reserve's 2024 Small Business Credit Survey, applicant satisfaction with lenders declined year over year, which underscores the importance of choosing a lender who is transparent about rates, terms, and timelines from the start.

4. Gather Your Documents and Apply

Use the documentation checklist from the qualification section above to prepare your complete application package before submitting. Incomplete applications are one of the most common causes of delays and denials. Most SBA lenders will take 30 to 90 days to process your application, while alternative lenders like Fundwell can often provide decisions within days.

5. Review Terms and Close

Before signing any loan agreement, review the total cost of borrowing carefully. Look beyond the interest rate and examine the annual percentage rate (APR), prepayment penalties, personal guarantee requirements, and any collateral obligations. If anything is unclear, ask. A reputable lender will be transparent about every aspect of the agreement. Once you sign, funding can happen quickly, and you'll be on your way to franchise ownership.

What to Do If Your Franchise Loan Gets Denied

A denial doesn't mean the end of your franchise ownership goals. It means you need to adjust your approach.

Common Reasons for Denial

Understanding why you were denied is the first step toward getting approved. The most common reasons lenders decline franchise loan applications include the following.

• Low personal credit score falling below the lender's threshold
• Insufficient cash reserves or inability to meet equity injection requirements
• Weak business plan with unrealistic financial projections
• Franchise not listed on the SBA Franchise Directory (for SBA loans)
• Too much existing debt relative to income (high debt-to-income ratio)
• Limited business or management experience

Alternative Paths Forward

If traditional lending doors close, you still have options worth exploring.

• Try an alternative lender. Companies like Fundwell work with borrowers who may not qualify for SBA or bank loans, offering faster timelines and more flexible requirements.
• Consider ROBS. If you have significant retirement savings, a Rollover as Business Startup lets you fund your franchise without a loan at all.
• Bring on a partner. A co-investor or business partner with stronger financials can strengthen your application and share the risk.
• Build your credit first. If credit is the issue, spending 6 to 12 months improving your score can dramatically change your options. Check out Fundwell's guide on how to start building business credit.
• Choose a lower-cost franchise. If the total investment is the barrier, consider a franchise with a smaller initial investment that fits your current financial profile.

Tips for Getting Approved Faster

Whether you're applying for an SBA loan or working with an alternative lender, these strategies can improve your odds and speed up the process.

• Start building personal credit early. Pay down credit card balances, resolve any collections, and avoid opening new credit lines in the months before applying.
• Create a detailed franchise business plan. Include market analysis, financial projections based on the franchise's FDD data, and a clear explanation of how you'll use the funds. SCORE's franchise planning guide can help you get started.
• Show liquid reserves beyond the down payment. Lenders want to see that you won't run out of cash the moment the business opens. Having 3 to 6 months of operating expenses in reserve strengthens your application.
• Choose an SBA-approved franchise with proven unit economics. Franchises with strong Item 19 disclosures and high franchisee satisfaction scores are easier to finance.
• Work with lenders experienced in franchise financing. A lender who understands the franchise model can evaluate your application faster and more favorably than a generalist. Fundwell's team has helped thousands of franchise businesses secure financing.

Find the Right Franchise Financing for Your Business

Franchise ownership is within reach for more people than ever, but the financing piece has to be right. The best approach is to understand your total costs, know your credit profile, and match yourself to the financing option that fits your timeline, budget, and goals.

If you're ready to explore your options, Fundwell offers multiple financing solutions for franchise buyers, from SBA loans to flexible revenue-based financing. With fast approvals, transparent terms, and real human support throughout the process, Fundwell has helped deliver over $1 billion in funding to small businesses across the country.

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Frequently Asked Questions About Franchise Financing

Can you get a loan to buy a franchise?

Yes. Franchise buyers can access SBA loans, conventional bank loans, alternative business loans, equipment financing, and business lines of credit. The type of loan that's right for you depends on your credit score, how much you need, and how quickly you need the funds. Many franchise brands are also SBA-eligible, which opens the door to government-backed loans with favorable rates and terms.

How much money do you need to put down on a franchise?

Most lenders require a down payment (called an equity injection) of 10% to 30% of the total franchise investment. For a $200,000 franchise, that means you may need $20,000 to $60,000 in personal capital. Some alternative lenders may require less, and ROBS allows you to use retirement funds without a traditional down payment. Your total liquid assets and net worth also factor into what lenders will accept.

What credit score do you need for a franchise loan?

For SBA loans, most lenders want a personal credit score of at least 680. Conventional bank loans may require 700 or higher. If your credit score is below these thresholds, alternative lenders like Fundwell may approve applicants with scores as low as 550, depending on other factors like revenue and available collateral.

Can you buy a franchise with no money?

It's very difficult to buy a franchise with absolutely no personal capital. Most lenders require some equity injection to demonstrate your commitment to the investment. However, a ROBS arrangement lets you use existing 401(k) or IRA funds without taking a loan, and some low-cost franchises have total investments under $20,000. In rare cases, franchisor financing programs may cover a larger portion of the startup costs. The most realistic path for buyers with limited cash is combining a small personal investment with creative financing like ROBS or a line of credit.

How long does it take to get approved for franchise financing?

Approval timelines vary widely depending on the lender and loan type. SBA loans typically take 30 to 90 days from application to funding. Conventional bank loans may take 2 to 8 weeks. Alternative lenders like Fundwell can often provide decisions within 24 to 48 hours, with funding in as little as a few business days. Having your documents organized and your application complete before submitting is the single best way to speed up the process regardless of which lender you choose.

Your business needs equipment to grow. A new commercial oven, a second delivery truck, a CNC machine to take on bigger contracts. The equipment need is clear. What is less clear is how to pay for it without wiping out your working capital or stalling momentum.

That is where equipment financing comes in. It is one of the most practical tools available to small business owners, and at Fundwell, it is one of the financing paths we help businesses navigate every day. This guide walks you through how equipment financing works, what it costs, whether you will qualify, and when it genuinely makes sense for your situation.

According to the Equipment Leasing and Finance Association (ELFA), U.S. businesses are expected to invest more than $2 trillion in equipment and software annually, with a significant portion of that activity financed rather than purchased outright. You are in good company when you choose to finance.

What Equipment Financing Is

The Basic Mechanics of Equipment Financing

Equipment financing is a broad term for any loan or lease that helps a business acquire equipment by spreading the cost over time. Instead of paying the full purchase price upfront, you make regular payments, typically monthly, until the equipment is fully paid for or the lease term ends.

One of the reasons business equipment financing is often easier to qualify for than many other loan types is that the equipment itself typically serves as collateral. Lenders have something concrete to secure against, which reduces their risk and can make approval more accessible to businesses that might not qualify for an unsecured loan. At Fundwell, we work with a network of lenders who specialize in equipment financing across industries, which means the criteria and options available to you are often broader than what a single bank can offer.

Types of Equipment You Can Finance

The term "equipment" covers a wide range of assets in the lending world. Most lenders define it as any tangible, depreciable business asset with a useful life of more than one year. Here are some of the most common categories:

• Heavy equipment: excavators, bulldozers, cranes, forklifts
• Commercial vehicles: delivery trucks, semi-trucks, trailers, vans
• Restaurant and food service equipment: commercial ovens, refrigeration units, industrial dishwashers
• Medical and dental equipment: imaging systems, dental chairs, surgical tools
• Manufacturing machinery: CNC machines, printing presses, conveyor systems
• IT and technology: servers, POS systems, networking hardware, copiers
• Agricultural equipment: tractors, harvesters, irrigation systems
• Office furniture and fixtures: in some cases, depending on lender

If your business depends on physical assets to generate revenue, there is a good chance those assets are financeable. The ELFA's Monthly Leasing and Finance Index reports that the equipment finance sector processes roughly $8 to $12 billion in new business volume every single month, a sign of how deeply embedded equipment financing is in the business economy.

Equipment Loan vs Equipment Lease

How an Equipment Loan Works

An equipment loan is a term loan specifically for purchasing equipment. You borrow a set amount, buy the equipment, and repay the loan in fixed monthly installments over an agreed term, typically 2 to 7 years. Once the loan is paid off, you own the equipment outright with no further obligations.

The equipment usually secures the loan, though some lenders may require a personal guarantee. Down payments typically range from 0% to 20%, depending on your credit profile and the lender. Equipment loans are ideal when the equipment will hold value, have a long useful life, or when you want to build equity in an asset over time.

How an Equipment Lease Works

An equipment lease is closer to renting. You make monthly payments to use the equipment for a set term, but you do not own it at the end, unless the lease includes a purchase option such as a fair market value buyout or a $1 buyout clause. Leases typically have lower monthly payments than loans because you are not financing the full purchase price.

Leasing makes more sense when the equipment depreciates quickly, like computers or software-driven machinery, when you prefer to upgrade regularly, or when preserving cash flow matters more than ownership. That said, over time a lease may cost more than a loan if you end up repeatedly renewing or purchasing at end of term. You can explore the full picture in this Bankrate breakdown of equipment leasing vs. financing.

Here is a quick side-by-side to help you decide which might fit your business better:

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What Equipment Financing Typically Costs

Interest Rates and Fees

Equipment loan rates typically range from around 6% to 30% or more, depending on where you borrow, your credit profile, and the type of equipment being financed. According to NerdWallet's business loan rate data, average bank rates for business loans range from 6.7% to 11.5%, while online lenders tend to charge higher rates in exchange for faster, more flexible approvals.

Beyond the interest rate, watch for these common fees when evaluating any offer:

• Origination fee: typically 1% to 3% of the loan amount
• Documentation fee: a flat fee for processing paperwork
• Prepayment penalty: charged by some lenders if you pay off early
• Late payment fee: charged if you miss a payment due date

At Fundwell, transparency is a core commitment. When you submit a single application through our lending marketplace, you can compare offers side by side with rates and fees clearly laid out, so you are never surprised by hidden costs.

Factors That Affect Your Rate

Your rate is not arbitrary. Lenders weigh several factors when determining what they will charge. Understanding these factors helps you prepare a stronger application and gives you a realistic sense of where you may land.

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How to Qualify for Equipment Financing

Typical Lender Requirements

Qualification requirements vary by lender, but most equipment financing programs look for a combination of the following criteria:

• Personal credit score: Most lenders prefer 620 or above, though some will work with scores as low as 550 depending on other factors
• Time in business: Typically 1 to 2 years for conventional lenders; some online lenders work with businesses as young as 6 months
• Annual revenue: Many lenders require $100,000 or more; traditional bank lenders often set minimums at $250,000+
• Down payment: Often 0% to 20%, with better-qualified borrowers sometimes requiring nothing down
• Equipment invoice or quote: Lenders need to know exactly what is being financed

The Federal Reserve's 2024 Small Business Credit Survey found that equipment and auto loans had among the highest full-approval rates of any loan type, with roughly 73% of applicants receiving full approval. That is encouraging news if you are on the fence about applying.

If you are not sure where your application stands, our guide on how to get a small business loan walks through exactly what lenders evaluate.

Options If Your Credit Score or History Is Limited

A lower credit score or shorter business history does not automatically disqualify you from equipment financing. Several paths may still be available to you.

First, consider a larger down payment. Putting 20% or more down reduces lender risk and can offset a weaker credit profile. Second, some lenders specialize in equipment financing for newer businesses or those with credit challenges, and Fundwell's marketplace includes options across the credit spectrum. Third, an SBA loan, specifically the 7(a) or 504 program, can be an excellent option for equipment purchases, often at competitive rates even for borrowers who would not qualify for conventional bank financing.

For a full guide to your options, see our resource on getting a business loan with bad credit.

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The Tax Advantage Most Business Owners Miss

Section 179 and Financed Equipment

Here is something many small business owners overlook: you may be able to deduct the full cost of financed equipment in the year you place it in service, rather than depreciating it gradually over several years. That is what Section 179 of the IRS tax code allows.

Even if you financed the equipment and have not paid it off yet, Section 179 may let you deduct the full purchase price in year one, as long as the equipment is used for business and placed in service during that tax year. The 2024 deduction limit was $1.22 million. This can significantly reduce your taxable income and improve the real return on your equipment purchase. Always consult with your tax advisor before making decisions based on deduction eligibility, as rules and limits change year to year.

Bonus Depreciation

Stacking on top of Section 179, bonus depreciation allows businesses to deduct a percentage of the cost of qualifying new or used equipment in the first year. The bonus depreciation rate for 2024 is 60%, declining in subsequent years under current law. Businesses can use bonus depreciation after maxing out their Section 179 deduction, or in some cases instead of it.

Together, these two provisions can make equipment financing considerably more cost-effective than the sticker price suggests. A piece of equipment financed for $100,000 may generate a first-year tax benefit that meaningfully offsets your interest costs. Discuss the timing of your equipment purchase with your accountant to make the most of these rules.

When Equipment Financing Makes Sense and When It Doesn't

Situations Where Financing Is the Right Move

Equipment financing tends to be the right tool when several conditions come together. Consider financing your equipment when these circumstances apply:

• The equipment will be used for 3 or more years and holds its value well, such as heavy machinery, commercial vehicles, or industrial appliances
• Buying the equipment outright would deplete cash reserves below a comfortable operating buffer
• Revenue is growing and the equipment will directly increase your capacity or output
• You want to take advantage of Section 179 or bonus depreciation in the current tax year
• A contract or project requires specific equipment to fulfill, and renting is more expensive over the project's lifespan

Fundwell has helped businesses across dozens of industries get equipment funded in as fast as 24 hours. When you have a job lined up and the equipment is the only thing standing between you and the revenue, speed matters. With over $1 billion delivered to businesses through our platform, we know how to move quickly when it counts.

Situations Where a Different Tool May Work Better

Equipment financing is not always the best answer. There are situations where a different product may serve you better, and it is worth being honest about those before you commit.

• Short-term or seasonal use: If you need a piece of equipment for 3 to 6 months, renting or leasing is usually more cost-effective than financing a full purchase.
• Rapidly obsolete technology: If the equipment will be outdated in 2 to 3 years, a lease or a business line of credit may give you more flexibility to upgrade without being locked into a long loan term.
• Unpredictable cash flow: Fixed monthly equipment loan payments work best when revenue is steady. If your business has highly variable income, revenue-based financing with flexible payment structures might be a better fit.
• Equipment for a one-time project: If the equipment is only needed for a single contract and will not be used again, consider whether loan payments over 3 to 5 years still make financial sense. Our guide comparing a business line of credit vs. a term loan can help you think through this decision.

It is also worth knowing that if you are currently waiting on outstanding invoices while trying to fund an equipment purchase, Fundwell's invoice financing platform can help you access that cash faster. We are a lending marketplace and a B2B payments platform, and sometimes combining both tools is the smartest move.

How to Finance Equipment Through Fundwell

What You Will Need to Apply

Gathering your documents before you apply makes the process faster and improves your chances of getting the best offer. Most equipment financing applications through Fundwell will require the following:

• 3 to 6 months of business bank statements
• An equipment invoice, quote, or description of what you are financing
• Basic business details such as legal name, EIN, industry, and years in operation
• Personal identification for the business owner or owners
• Authorization for a soft or hard credit pull, which varies by lender

Some lenders in the Fundwell network may also request business tax returns or a profit and loss statement, particularly for larger loan amounts. Having these ready in advance will speed up your approval timeline.

The Fundwell Application Process

Fundwell is a lending marketplace, not a single lender. That distinction matters because one application can surface multiple offers from multiple lenders, rather than requiring you to apply separately to five or ten institutions and manage multiple credit pulls and follow-up calls.

Here is how the process works:

1. Submit a single application on our platform
2. Our system matches you with lenders from our network who fit your profile and equipment type
3. You receive offers with transparent rates, terms, and monthly payment estimates
4. Choose the offer that works best for your cash flow and goals
5. Complete final documentation and get funded, often within 24 hours

Our team provides real human support throughout the process. No automated runarounds. Whether you are pursuing a small business loan for equipment or want to explore working capital financing options alongside your purchase, Fundwell gives you access to multiple paths through a single application.

Ready to see what you may qualify for?

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Frequently Asked Questions

What credit score do I need for equipment financing?

Most equipment financing lenders prefer a personal credit score of 620 or above. However, some lenders in Fundwell's network may work with scores as low as 550, particularly when other factors like revenue and time in business are strong. A solid equipment invoice and a down payment can also help offset a lower score.

Can I get equipment financing with bad credit?

Yes, in many cases. Equipment financing is often more accessible than unsecured loans because the equipment itself serves as collateral. Businesses with limited or damaged credit may still qualify, especially through specialized lenders, with a larger down payment, or via SBA programs. You can explore your options in our detailed guide on getting a business loan with bad credit.

How long does equipment financing take?

Timelines vary by lender. Many equipment loans through our lending network can be approved and funded within 24 to 48 hours. SBA equipment loans may take several weeks due to additional documentation and underwriting requirements. Having your bank statements and equipment invoice ready before you apply is the single best way to speed up the process.

What is the maximum amount I can borrow for equipment?

Equipment financing amounts typically range from $5,000 to several million dollars, depending on the lender and equipment type. SBA 7(a) loans go up to $5 million and can be used for equipment purchases. For heavy equipment or large manufacturing systems, specialized lenders may finance even larger amounts. Learn more about how SBA lending works in our post on SBA loan interest rates.

Is equipment financing a good idea for startups?

It can be, though startups face more limitations than established businesses. Some online lenders work with businesses as young as 6 months with sufficient revenue. If you are a newer business, an SBA microloan or a startup-focused lender may be a better starting point. Our team at Fundwell can help you find which program fits your stage of business.

What is the difference between a capital lease and an equipment loan?

A capital lease, sometimes called a finance lease, is structured similarly to a loan in that you typically own the equipment at the end of the term via a $1 buyout clause. Monthly payments are higher than an operating lease and the asset appears on your balance sheet. An equipment loan is a traditional installment loan where you own the equipment from day one and use it as collateral. Both result in ownership. The key difference is how they are structured and reported for accounting purposes. Your accountant can help you determine which treatment works best for your business.