Do you know the real cost of buying a franchise?

The upfront franchise fee is only part of what you'll need to fund.

When you're looking at purchasing an established real estate office under a franchise model, the typical structure includes the franchise fee, fit-out or equipment costs, working capital to cover the first few months of operation, and sometimes a property lease bond. Most buyers focus on the franchise fee itself and overlook how lenders assess the total funding requirement, which often sits between $200,000 and $500,000 depending on the brand and location.

How lenders assess franchise loan applications

Lenders treat franchise loans differently to standard business loans because the franchise system provides a proven business model and established brand recognition. That structure reduces some risk, but it doesn't eliminate serviceability concerns. You'll still need to demonstrate that the business can generate enough cash flow to cover loan repayments, franchise royalties, and your living expenses.

Most lenders want to see a detailed franchise business plan that includes projected revenue based on the territory or office location, a breakdown of ongoing franchise fees and royalties, and evidence of your own financial position including savings, other income, or assets you can use as security. If you're buying into an established office with existing sales data, that transaction history becomes central to the assessment. If it's a new territory, lenders rely more heavily on your own experience in the industry and the franchisor's average performance data across the network.

The difference between fixed and variable interest rates for franchise funding

Franchise finance is typically structured as a business loan, and you'll have the option to lock in a fixed interest rate or use a variable interest rate. A fixed rate gives you certainty over repayments for a set period, usually one to five years, which can be useful when you're managing the early stages of taking over an office and want predictable costs. A variable interest rate moves with the market, which means your repayments could increase or decrease depending on rate changes, but you usually get more flexibility to make extra repayments or pay the loan out early without penalty.

In our experience, buyers who have other income sources or existing property often prefer variable rates because they can pay down the loan faster once the business starts generating strong cash flow. If you're relying entirely on the franchise income to service the loan and cover your personal expenses, a fixed rate can remove some uncertainty during the first few years.

Using property as security instead of relying on business cash flow alone

Consider a buyer who wants to purchase a real estate office in the Mornington area. The franchise fee is $150,000, fit-out and initial marketing costs add another $80,000, and the lender wants to see at least three months of working capital, which brings the total loan amount to around $280,000. The buyer owns a home in Mount Eliza with $400,000 in available equity.

Instead of applying for an unsecured business loan at a higher interest rate, the buyer uses the equity in their home as security. The lender assesses the application based on both the business plan and the property security, which results in a lower rate and better loan terms. The loan is structured with interest-only repayments for the first two years, which keeps cash flow manageable while the buyer transitions into the business. After 18 months, the office is generating consistent income, and the buyer switches to principal and interest repayments to start reducing the debt.

This approach works particularly well for buyers on the Mornington Peninsula, where property values have held firm and many potential franchisees already own their home. Using real estate as security gives you access to business loan options from banks and lenders across Australia that wouldn't otherwise consider franchise funding without substantial trading history.

What to expect from the franchisor during the loan process

The franchisor plays a direct role in the finance approval process, even though they're not the lender. Most franchise brands require you to be approved by them before you can proceed with a loan application, and they'll provide the lender with a franchise disclosure document, territory performance data, and confirmation of the franchise agreement terms. Some franchisors have preferred lender panels, which can speed up the process, but you're not obligated to use them. We regularly see buyers get better terms by comparing offers across multiple lenders rather than defaulting to the franchisor's suggestion.

The franchise agreement itself will be reviewed by the lender, particularly the sections covering franchise royalties, marketing levies, and the term of the agreement. If the franchise term is only five years with no guaranteed renewal, some lenders won't offer loan terms longer than that period. If the agreement includes a 10 or 15-year term, you'll have more flexibility with loan structure.

How working capital affects your loan amount and approval

Working capital is the funding you need to cover operating costs before the business starts producing consistent income. For a real estate office, that includes staff wages if you're taking on an existing team, rent and utilities, marketing and advertising, franchise royalties, and your own drawings to cover personal expenses.

Lenders don't want to see you run out of cash three months after settlement, so they'll typically ask for at least three to six months of working capital to be included in the loan amount or held separately in savings. If you're purchasing an office that already has active listings and a pipeline of settlements, the working capital requirement might be lower because there's immediate income. If you're starting fresh or taking over a territory with no existing client base, expect the lender to ask for a larger buffer. Some buyers choose to keep working capital separate and fund it from savings rather than borrowing it, which can improve serviceability and reduce the total debt.

When to consider a split between business and personal lending

If you're buying a franchise and also looking to purchase or refinance your home, splitting the lending structure between a business loan and a residential loan can give you more control. The business loan covers the franchise purchase and working capital, while the residential loan or refinance handles your personal property. This keeps your business and personal finances separated, which makes tax planning simpler and ensures that your home loan retains the full range of features and offset account benefits that business loans often don't offer.

For clients based in Mornington, where lifestyle and business often overlap, this split structure allows you to access commercial loans for the franchise and maintain competitive residential rates on your home. It also means that if you want to sell the business or refinance the franchise loan separately in the future, you can do so without disrupting your home loan.

Call one of our team or book an appointment at a time that works for you. We access business loan options from banks and lenders across Australia and can structure franchise funding in a way that fits your situation, whether you're using property security, business cash flow, or a combination of both.

Frequently Asked Questions