Franchise Down Payment Options

If you’re researching a franchise down payment, we’ve got great news: almost no one pays for a franchise entirely out of pocket. Most franchisees use a mix of financing tools to cover the down payment and upfront fees. The trick is knowing which options are efficient, which carry risk, and which combinations actually make lenders more comfortable.

We’ll walk through the most common franchise down payment options, then compare them side by side.

Choosing a franchise down payment option involves balancing your current savings, future financial goals, comfort level with risk, and your financial flexibility requirements. Most franchisees use personal savings and SBA loans to cover the bulk of costs, and then combine a few of the other options above to fill in the gaps, depending on their financial situation.

Understanding Franchise Down Payment Options

Each source of capital serves a different purpose. Some strengthen lender confidence, others reduce upfront strain, and a few are best used only in very specific situations. The sections below break down how each option functions independently, when it is most suitable to use it, and what to be mindful of before incorporating it into your overall funding strategy.

Personal Cash Savings

This is the anchor of many franchise down payments, even when other financing is involved. Lenders want to see skin in the game: real personal capital at risk, not just enthusiasm for the idea.

This typically comes from:

• Savings accounts.
• Money market funds.
• Liquid, non-retirement investments.

Using some cash upfront lowers the total amount you need to borrow and improves loan terms. That said, most experienced buyers avoid draining their reserves completely. Working capital matters just as much as the franchise fee.

SBA Loans (Most Common Overall)

SBA 7(a) loans are the most widely used financing tool in franchising, particularly for established brands, and are often regarded as the backbone of franchise financing. They typically require a down payment of 10%–20%, with the remaining amount financed over a period of up to 10 years.

What makes SBA loans effective:

• Lower down payment requirements.
• Longer repayment terms.
• Lenders are already familiar with many franchise models.

The trade-off is time and paperwork. SBA loans are thorough by design, and personal guarantees are standard. Still, for many buyers, this structure allows for manageable monthly payments and preserves cash for operational expenses.

ROBS (Rollovers as Business Startups)

ROBS allows franchisees to roll funds from eligible retirement accounts into their business without triggering early withdrawal penalties or immediate taxes.

This option is often used to:

• Cover part of the franchise down payment.
• Eliminate or reduce the loan size.
• Pair with an SBA loan to strengthen approval odds.

The upside is flexibility and the absence of monthly debt payments. The downside is concentration risk. Your retirement savings become tied to the success of a business.

For disciplined operators who understand the structure and risks, ROBS can be effective. It just requires clarity and execution.

Home Equity (HELOC or Home Equity Loan)

Home equity is frequently used to supplement other franchise down payment options, especially when buyers are close but not quite at the required cash threshold. Essentially, it’s flexible funding that is particularly good at filling in the gaps.

Why buyers lean on it:

• Lower interest rates than unsecured loans.
• Quick access to capital.
• Funds can be used flexibly for fees, buildout, or working capital.

The risk is obvious and high: your home is collateral. This option is more suitable for buyers with a stable household income and prior business experience, but may be less ideal as a primary funding source.

Used sparingly, it can help smooth out a deal. Used aggressively, it unnecessarily raises the stakes.

Franchisor Financing and Incentives

Some franchisors offer internal financing or incentives, such as:

• Reduced franchise fees.
• Deferred payments.
• Limited in-house financing.

This is helpful, but rarely sufficient on its own.

These programs are most common with emerging brands, multi-unit deals, or veteran-focused initiatives. While they can significantly lower upfront costs, they rarely replace the need for outside financing.

Think of these as capital reducers rather than primary funding solutions. They lower the amount of capital you need upfront, but they don’t replace outside financing.

Partner or Investor Capital

With partner or investor capital, you and another party are sharing both risk and reward. It is often used when:

• Multiple units are planned.
• Franchise costs are prohibitively high.
• Buyers want to preserve personal liquidity.

The benefit is that less personal cash is required. However, the shared control and skin in the game mean that there is also shared upside. Clear agreements on the responsibilities and entitlements of each party, along with defined roles, are essential.

Strong partnerships can accelerate growth. Weak ones complicate decision-making. The structure matters as much as the money.

Equipment Financing

Most franchises will require franchisees to pay for their own equipment. While equipment financing itself doesn’t usually count as a down payment, it can reduce the amount of cash needed upfront by covering major startup assets.

This is especially useful for:

• Restaurants.
• Fitness studios.
• Automotive services.
• Medical or service franchises with expensive equipment.

By financing equipment separately, buyers preserve cash for franchise fees and working capital, which lenders view favorably.

If the equipment generates revenue, letting it pay for itself is often a matter of simple efficiency.

Veteran Programs

Those who have served our country may be eligible for programs that aim to reduce costs and make entrepreneurship more accessible once they retire from military service.

Veteran franchisees may qualify for:

• SBA fee reductions.
• Franchise fee discounts.
• Veteran-focused lender programs.

These benefits lower overall costs but usually do not eliminate the need for a franchise down payment. They work best when layered on top of SBA loans or cash contributions.

While they reward service, they don’t remove financial discipline from the process. Veterans must still be diligent.

How and Why Franchise Down Payment Options Are Commonly Combined

Outside of exceedingly rare cases, a franchise down payment is almost always built from a combination of financing options. It’s uncommon to see a franchise paid for entirely up front, even among experienced owners opening additional locations.

That’s because most deals are structured, not swallowed whole.

A common setup might look like this:

• 10%–15% personal cash
• SBA loan covering the majority
• ROBS or a HELOC to bridge any gaps
• Equipment financing to preserve liquidity
• Franchisor incentives to reduce upfront fees

There’s no single formula that works for everyone. Each franchisee must determine which mix suits their situation, sometimes with assistance from a franchise attorney, lender, or advisor who understands how these pieces interact.

When everything is forced into one category, pressure appears quickly. When funding is structured thoughtfully, the business has more room to operate, adjust, and navigate the early stretch where cash flow is still finding its footing.

A Hypothetical Franchise Down Payment Example

Fran Chiseman isn’t new to business, but this is her first franchise ownership experience. She’s considering a brand with total startup costs of around $350,000, which includes the franchise fee, buildout, equipment, and working capital.

Like most buyers, Fran doesn’t write one giant check.

Instead, her franchise down payment and upfront costs come together through a few different sources:

• $40,000 in personal cash savings: This accounts for roughly 10–12% of the total project and demonstrates to lenders that she has a stake in the project without depleting her accounts.
• An SBA 7(a) loan for the majority of the funding: The SBA loan covers most of the remaining costs and spreads repayment over a longer term, keeping monthly payments manageable while the business ramps up.
• A small rollover from an old 401(k): Fran uses this to strengthen the down payment and reduce the total loan amount, rather than bankrolling the entire business.
• Equipment financing for major assets: Rather than paying cash for equipment, Fran finances it separately, allowing more cash to remain available for payroll, marketing, and early operating expenses.
• A franchisor incentive that reduces the franchise fee: This doesn’t replace financing, but it lowers the amount Fran needs upfront and tightens the overall numbers.

For example, a 10% franchise fee reduction for woman ownership. This doesn’t replace financing, but it lowers the amount Fran needs upfront and tightens the overall numbers.

Fran doesn’t use every option available because she doesn’t need to. The structure aligns with her risk tolerance, maintains her household finances, and provides the business with room to breathe during the first year.

Making the Numbers Work Before You Sign

Choosing the right franchise down payment strategy begins with understanding how each option works and how it aligns with the type of franchise you’re considering.

The way a deal is structured can affect not just approval, but also how much flexibility you have once the business is operating. Franchise.com helps buyers identify franchise opportunities that align with their goals and think through funding strategies that make sense for the long term.

Start your franchise journey today.