What is the best way to finance a franchise?

SBA 7(a) loans are the most common franchise financing method, used in about 60% of franchise purchases. They offer the longest terms (up to 25 years), lowest down payments (10-20%), and competitive rates (prime + 1.5-2.75%). Your franchise must be on the SBA Franchise Directory. For people with $50K+ in retirement savings, ROBS (Rollover for Business Startups) avoids debt entirely by using 401(k) funds.

Can I buy a franchise with no money down?

Not from a bank or the SBA. SBA loans require 10-20% equity injection that cannot be borrowed. However, ROBS lets you use retirement funds as the down payment without it counting as debt. Some veterans qualify for SBA programs with reduced down payments. Chick-fil-A is the notable exception: they fund the entire buildout and equipment for a $10,000 franchise fee.

What credit score do I need to buy a franchise?

SBA franchise loans typically require 680+ FICO. Some lenders go as low as 650 with strong collateral. Conventional bank loans want 700+. ROBS (401k rollover) has no credit requirement since you're using your own money. Seller financing credit requirements are negotiable. Below 650, plan on 6-12 months of credit building before applying for franchise financing.

How does ROBS work for franchise financing?

ROBS (Rollover for Business Startups) lets you use 401(k) or IRA funds to buy a franchise without early withdrawal penalties or taxes. You form a C-corporation, establish a new 401(k) plan under it, roll your existing retirement funds into that plan, and the plan buys stock in your company. The company uses those funds to purchase the franchise. Setup costs $3,000-$5,000. About 10% of franchise buyers use ROBS.

How to Finance a Franchise (2026)

Five ways to fund a franchise purchase. SBA loans are the default. ROBS works if you have retirement savings and no debt appetite. Seller financing is underrated for resale units. The right option depends on your cash position, credit, and risk tolerance.

Franchise Financing Options at a Glance

Method	Rate	Down payment	Max amount	Max term	Credit needed
SBA 7(a) Loan	9.0-10.25%	10-20%	$5,000,000	25 years	680+
SBA 504 Loan	6.5-7.5%	10%	$5,500,000	25 years	680+
Conventional Bank Loan	8-13%	20-30%	Varies	10 years	700+
ROBS (401k Rollover)	0%	100%	Your balance	N/A	Any
Seller Financing	6-10%	10-30%	Sale price	5-7 years	Negotiable
Franchisor Financing	8-12%	Varies	Varies	5-10 years	Varies
Home Equity (HELOC)	7-10%	N/A	80% of equity	20 years	680+

Most common

SBA 7(a) Loan

The SBA 7(a) program backs about 60% of franchise loans. The government guarantees 75-85% of the loan, which makes banks more willing to lend to first-time franchise buyers. Your franchise has to be on the SBA Franchise Directory. Processing takes 30-90 days.

Good for

First-time franchise buyers
Purchases under $5M
Borrowers with 680+ credit
When you need the longest repayment term

Watch out for

SBA guarantee fee (0.25-3.75% of loan)
Personal guarantee required
Slower processing than conventional
Franchise must be on SBA directory

Full SBA eligibility guide + state-by-state lender data →

No debt

ROBS (Rollover for Business Startups)

ROBS lets you use retirement funds (401k, IRA) to buy a franchise without early withdrawal penalties or taxes. You create a new C-corp, roll your retirement funds into a new 401(k) plan under that corp, and the plan buys stock in your company. It's IRS-compliant but complex. About 10% of franchise purchases use ROBS.

Good for

$50K+ in retirement accounts
People who hate debt
Can double as SBA down payment
No monthly loan payment

Watch out for

Must form a C-corp (not LLC)
IRS audit risk if structured wrong
Setup costs $3,000-$5,000
Your retirement savings are at risk

Resale units

Seller Financing

When buying an existing franchise location from the current owner, the seller sometimes carries a note. They act as the bank. Terms are negotiable. This works especially well when combined with an SBA loan: the bank covers 70-80%, the seller carries 10-15%, and you bring 10-15% in cash.

Good for

Buying existing franchise units
Lower down payment (seller carries part)
Flexible credit requirements
Faster closing than SBA alone

Watch out for

Shorter terms (5-7 years typical)
Franchisor must approve the transfer
SBA limits seller note to 5% equity injection
Balloon payments sometimes required

Conventional Bank Loan

Traditional bank loans without SBA backing. Higher down payment (20-30%), shorter terms, and tougher credit requirements. The upside: faster approval and no SBA guarantee fee. Best for experienced operators with strong financials who want to close quickly.

Franchisor Financing

Some franchisors offer in-house financing or have partnerships with preferred lenders. Terms vary widely. Chick-fil-A funds the entire buildout (you bring $10K). Most other franchisors don't go that far, but may finance the franchise fee or offer deferred payment plans. Always compare franchisor terms to SBA rates.

Home Equity Line of Credit (HELOC)

If you own a home with significant equity, a HELOC can fund a franchise or cover the down payment for an SBA loan. Rates are typically lower than unsecured business loans. The risk: your house secures the loan. If the franchise fails, you could lose your home. Most advisors say limit HELOC to the SBA equity injection, not the whole franchise cost.

Which Financing Fits You?

How much cash do you have available?

Credit score range?

Do you have retirement savings ($50K+)?

Buying new or resale unit?

Related on FranchiseBudget

Franchise Cost Calculator SBA Eligibility by State ROI Calculator Startup Cost Calculator

Embed this calculator

Add this free calculator to your website or blog — no signup required.

<iframe
  src="https://franchisebudget.com/financing-options?embed=true&utm_source=embed&utm_medium=iframe&utm_campaign=widget"
  title="How to Finance a Franchise: SBA, ROBS, Seller Financing & More (2026)"
  width="100%"
  height="520"
  style="border:none; border-radius:8px; box-shadow:0 1px 4px rgba(0,0,0,.12);"
  loading="lazy"
  allowtransparency="true"
></iframe>