Financing a franchise can be an attractive path to entrepreneurship, but many buyers are surprised to learn how substantial a franchise loan down payment can be. Understanding how lenders determine down payment requirements—and how you can prepare—can dramatically improve your chances of securing affordable financing. Whether you're purchasing a well-known national franchise or a smaller regional brand, the down payment influences everything from your approval odds to your long-term profitability.
In this comprehensive guide, we break down how franchise loan down payments work, typical percentage ranges, lender expectations, SBA requirements, examples, and practical strategies to strengthen your approval. You’ll also learn how Crestmont Capital helps franchise buyers structure funding that aligns with both lender criteria and long-term business needs.
A franchise loan down payment is the upfront cash contribution a borrower must invest when securing financing to purchase or open a franchise. This down payment lowers the lender’s risk, confirms that the borrower has “skin in the game,” and helps ensure the business starts with a healthy balance sheet.
Down payments apply to many types of franchise financing, including SBA 7(a) loans, equipment loans, and conventional business loans. While specific requirements vary, the underlying purpose remains the same: demonstrate financial strength and reduce lender risk.
In most cases, franchise buyers should expect to contribute a down payment equal to 10%–30% of the total project cost. This cost often includes:
Franchise fees
Build-out and construction
Equipment
Working capital
Inventory
Training and licensing
Closing fees
Because franchise ownership involves both startup costs and ongoing working capital needs, lenders want to ensure buyers enter the business with adequate financial stability.
Providing a strong down payment isn’t just a minimum requirement—it's a strategic advantage. Key benefits include:
Higher approval probability: Lenders favor borrowers who demonstrate financial commitment and liquidity.
Lower interest rates: A bigger down payment reduces perceived risk, which can lead to better loan terms.
Smaller monthly payments: The more you contribute upfront, the lower your financed balance.
Better long-term cash flow: Lower debt service means more available working capital during the crucial early stages of franchise operation.
Stronger negotiation position: Some franchisors and sellers may offer incentives or improved terms to buyers who bring more equity.
Understanding the full process helps franchise buyers prepare well in advance. Below is a typical step-by-step workflow:
Lenders evaluate the entire cost to purchase or launch the franchise, not just the franchise fee. A full project budget typically includes build-out, equipment, training, and working capital.
Once the full cost is known, lenders calculate the required down payment—usually 10%–30% of the project amount, depending on loan type and risk factors.
Lenders require documentation proving you possess the funds and that the money is not borrowed (with rare exceptions). Acceptable sources include:
Personal savings
Retirement rollovers (ROBS)
Home equity
Gifts
Proceeds from the sale of business or property
This includes financial statements, credit history, resumes, business plans, and cash flow projections. For SBA loans, additional SBA forms are required.
Underwriting reviews financial feasibility, collateral, franchise performance history, and borrower strength. Adjustments to the required down payment may occur based on risk assessment.
Once approved, funds are released for franchise fees, construction, equipment, and working capital in accordance with the lender’s draw schedule.
Not all franchise loans are the same. Below is a comparison of common funding structures.
Most SBA 7(a) loans require a 10% equity injection for franchise startups or acquisitions. However, lenders may increase the requirement to 15%–20% if:
The borrower has limited experience
The franchise is considered high-risk
Financial projections rely heavily on future growth
The business has limited collateral
The SBA provides federal guarantees to participating lenders, reducing risk and enabling more flexible financing terms. For updated guidance, the SBA’s official site (SBA.gov) offers program insights and policy updates.
Without government backing, conventional lenders typically require 20%–30% down, and sometimes more. Borrowers with strong financials may secure lower requirements, but these loans are harder to qualify for, especially for first-time franchise owners.
Some franchises require equipment such as kitchen machinery, POS systems, or vehicles. Equipment financing usually requires little or no down payment, but the borrower may need strong credit or additional collateral.
Certain franchisors offer internal financing programs or partnerships. Requirements vary widely but often include equity investments similar to SBA standards.
Franchise financing with down payments ranging from 10%–30% is ideal for borrowers who:
Have strong personal liquidity and savings
Possess industry or operational experience
Want predictable cash flow and structured repayment terms
Are purchasing franchise models with strong historical performance
Prefer long-term, lower-interest financing instead of short-term alternatives
Are aiming for multi-unit expansion
Borrowers with limited liquidity or low credit may need to explore alternative financing structures such as unsecured working capital loans or equipment financing as supplements.
Franchise financing has distinct down payment expectations compared to other loan types. Here's how it stacks up.
New non-franchise startups often require even larger equity injections due to higher perceived risk. Franchise buyers benefit from proven business models, which reduces down payment requirements.
Equipment loans frequently require minimal down payments because the equipment itself serves as collateral. Franchise loans involve broader project costs and therefore higher equity requirements.
Working capital loans often require no down payment but come with much shorter terms, higher rates, and smaller funding amounts—making them useful supplements but not substitutes for franchise financing.
ROBS programs allow borrowers to invest retirement funds without a conventional down payment. These arrangements are complex but can be effective for franchise buyers without large cash reserves. Consult authoritative sources such as CNBC.com and Forbes.com for coverage on franchise funding trends and retirement investment strategies.
Crestmont Capital specializes in helping franchise owners secure competitive financing structures that align with lender criteria and long-term business goals. Our team works with multiple funding products, including SBA loans, equipment financing, working capital, and multi-unit expansion loans.
Here are ways Crestmont Capital supports franchise buyers:
Personalized funding strategies tailored to your franchise model
Transparent guidance on down payment requirements and SBA eligibility
Access to a diverse network of lending partners
Assistance in structuring project budgets and financial documentation
Full support through underwriting, approval, and funding
Learn more about financing options by visiting:
These pages provide detailed insights into loan structures and additional funding products that may complement a franchise loan.
Below are practical examples that illustrate different borrower profiles and down payment requirements.
Total project cost: $350,000
Lender down payment requirement: 15%
Borrower invests: $52,500
The borrower has good credit but little industry experience. The lender increases the down payment to mitigate risk.
Total project cost: $500,000
Down payment: 10%
Borrower invests: $50,000
Because the borrower already runs a successful unit, the lender views this expansion as lower risk.
Total project cost: $800,000
Down payment: 20%
Borrower invests: $160,000
Acquiring an existing franchise may require a larger down payment, particularly if the business has fluctuating cash flow.
Total project cost: $300,000
Down payment: Structured through ROBS program
Instead of investing cash, the borrower uses a compliant retirement rollover to meet equity requirements.
Construction cost: $250,000
Equipment loan: 90% financed
Down payment: 10% on equipment + 20% on construction
This borrower combines financing tools to reduce their cash requirement.
Most lenders require 10%–30% of the total project cost. SBA loans are typically at the lower end, while conventional loans may require more.
Generally no. Lenders require that the down payment come from your own funds. However, some exceptions exist, such as gifts or ROBS programs.
The SBA requires a minimum 10% equity injection for most startup and acquisition franchise loans. Lenders may require more depending on risk factors.
Yes. Borrowers with good credit, liquidity, and industry experience often qualify for lower down payments.
Franchises with lower startup costs or strong performance history may allow for lower equity. Some franchisors also offer internal financing programs.
Yes, through a ROBS program. This allows you to invest retirement assets without early withdrawal penalties.
Consider supplementing with equipment financing, working capital loans, or restructuring the project budget. Crestmont Capital can help explore creative funding solutions.
If you're planning to purchase or open a franchise, the down payment will be a central part of your financing strategy. Start by evaluating your liquidity, reviewing your financial statements, and identifying acceptable sources of equity. Then determine whether SBA financing, conventional loans, or a combination of funding options best fits your project.
Crestmont Capital helps franchise buyers analyze funding requirements, structure deals, and prepare lender-ready documentation. Whether you’re opening your first location or expanding your footprint, our team provides financing guidance designed to increase approval likelihood and long-term success.
Securing financing for a franchise begins with understanding how a franchise loan down payment works, why lenders require it, and how your financial strength influences approval. The right down payment sets the foundation for healthier cash flow, stronger loan terms, and long-term business success. With thoughtful preparation and expert guidance from Crestmont Capital, franchise buyers can navigate the lending process with confidence and secure the funding needed to launch or expand their franchise operation.
Disclaimer:
The information provided in this article is for general educational purposes only and is not financial, legal, or tax advice. Funding terms, qualifications, and product availability may vary and are subject to change without notice. Crestmont Capital does not guarantee approval, rates, or specific outcomes. For personalized information about your business funding options, contact our team directly.