Glossary
Franchise agreement term
How long you have the right to operate the store. It usually caps how long a lender will write the loan for.
In plain English
The franchise agreement term is the period your right to trade under the brand runs for, before renewal. Terms of five to ten years are common, with renewal options that may or may not be within your control.
It matters for finance because lenders will rarely write a facility that runs past the end of it. At expiry the right to operate the business securing the loan ends, so the term of the agreement effectively sets the maximum term of the debt. A site with six years left is funded over roughly six years, which raises the annual repayment sharply against the same facility over ten.
Why a lender cares
Credit teams treat remaining agreement term as a hard structural input, not a preference. It is one of the few things that can make an otherwise strong deal fail on cover, purely because the repayment is compressed into fewer years. Where renewal can be brought forward or confirmed in writing before settlement, the file changes materially, and that is worth asking the franchisor for early.
Worked example
A $600,000 facility assessed at 9.5% costs roughly $93,200 a year over ten years and roughly $131,400 over six. At 1.50x cover the shorter term demands about $57,300 a year more in earnings, on the same store at the same price.
Where this term takes you
Reading up because a deal or a facility is on the table? One call with Nicholas gets you a straight read on your numbers, free.
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