Finance for franchisees, single and multi-site

A franchise file has a third party in it that no other commercial file has. Before you approach a lender, someone you did not negotiate with has already fixed how long you can trade, when you must spend money on the fit-out, what you may sell and to whom, and what happens at the end. A credit team reads all of that, and it reads it before it reads your numbers.

The good news is that most of it is written down in a document you are entitled to receive, and reading it as a finance document rather than as paperwork is the single most useful thing a prospective franchisee can do.

What actually differs

The agreement term caps the loan term

A lender will not comfortably write a facility that runs past the right to operate the business it is funding. So the term remaining on the franchise agreement, and whether there is a renewal option and on what basis, does more to set your repayment than your trading does.

Where the agreement has five years to run, an amortising facility usually has to fit inside it. That is not a problem in itself; it just has to be modelled at the outset, because a five year amortisation on an acquisition price set with a ten year horizon in mind is a cash flow the business may not carry. Buying an established site with three years left on the agreement is a different transaction to buying one with eight, at the same price and the same earnings.

Read the disclosure document as a finance document

Under the Franchising Code of Conduct, a franchisor must give a prospective franchisee a disclosure document at least 14 days before the agreement is signed, and a franchisee may terminate within 14 days of entering into it under the cooling-off provisions. A new Code commenced on 1 April 2025, with further changes becoming mandatory from 1 November 2025.

One of those changes matters directly here. From 1 November 2025 the disclosure document must include additional information about when a franchisee will be required to undertake significant capital expenditure during the term of the agreement, and must set out certain details where money is payable into a specific purpose fund. In finance terms, that turns the refurbishment cycle from something you find out about in year four into a dated line you can put in the model before you sign anything.

• Find the capital expenditure disclosure and put every mandated spend into the cash flow forecast, with its year.
• Check the term remaining and the renewal basis, because that is what caps the facility.
• Check the transfer provisions. What you can sell, and to whom, is what a lender is relying on if things go wrong.
• Add up the ongoing fees. Royalty, marketing levy and any fund contributions are real costs that reduce the earnings a lender adopts.

The add-backs a franchisee has

Two of these do most of the work, and one of them is specific to franchising.

The refurbishment one is worth explaining, because it is easy to get wrong in both directions. Where a mandated refit has been expensed in a single year, adding it back is legitimate: it is capital work that will not recur next year, and leaving it in reports the business as far weaker than it trades. What is not legitimate is treating the cycle as though it never comes round again. It does, it is now disclosed, and a file that adds the cost back without showing the next one in the forecast is a file that invites the question instead of answering it.

Owner drawings normalise the same way as any owner-operated business, and they can cut either way. Pay yourself above what the role is worth and the excess is an add-back. Work in the store for very little and a market wage comes out before the earnings are adopted, because an incoming owner cannot run it for free.

What those add-backs are worth

The categories above at the illustrative amounts shown, $110,000 in total, against the terms a franchise deal is actually written over.

The first two rows are the same business and the same earnings, differing only in how long the agreement has left. Two extra years on the term lifts what those earnings support from $289,000 to $370,000. That is why the term remaining is a price question, not just a legal one, and why it belongs in the negotiation rather than in the paperwork at the end.

The second site is a different application

Multi-site operators are usually stronger borrowers, because the risk is spread and the operator has a track record inside the system. But the second application is assessed on the group, not the site: everything the first site owes is an existing commitment, and if the first is still amortising hard the second may not service on paper even where the business case is obvious.

The other thing that catches operators is structure. A second site held in the same entity puts both at risk together; held separately it can complicate the security and the guarantees. That is a question for your accountant and your solicitor, and it is much cheaper answered before the first site than after the second.

Security, and the transfer clause

Fit-out and equipment recover poorly, so the security position in a franchise file usually rests on a general security agreement, personal guarantees, and often property held outside the business. The franchise agreement itself adds a wrinkle a lender pays attention to: if the business has to be sold, the franchisor typically has a say in who may buy it. A restricted pool of buyers is a slower and lower recovery, and it is priced accordingly.

What the file needs

• Two to three years of financial statements and tax returns for the site, plus current management accounts.
• The franchise agreement and the disclosure document, including the capital expenditure disclosure.
• The lease, with its term and options set against the term left on the franchise agreement.
• The franchisor's benchmarking for comparable sites, where the system provides it.
• Owner hours and roles, so the wage normalisation is done properly rather than guessed.
• For a second site: everything the first one owes, because the group is what gets assessed.

The acronyms, in one place

What we can and cannot tell you

Andorra Advisory Group is a commercial finance brokerage and advisory practice. We build the analysis and the documents, and we arrange the facility where you want us to. Nicholas Clunes: Credit Representative Number 530711 is authorised under Australian Credit Licence Number 387856. The advisory fee is fixed, quoted before the work starts, and payable regardless of whether finance is approved or what the analysis concludes. Where a lender pays commission on a facility it is paid to The Lending Lab Pty Ltd; it is not payable on every transaction and the amount is not ascertainable at the time of quoting. You are free to take the analysis to any broker or lender you like, at the same fee.

So no lender is named here and no franchise system is named. Every threshold is a level commonly seen, and every lender sets its own. We give no taxation advice, no legal advice and no financial product advice. The Franchising Code position summarised here is the ACCC's published guidance and it changes: check the current position at accc.gov.au, and take your particular agreement to a solicitor experienced in franchising before you sign it.

General information only. Not credit advice, not a credit assessment, and not an offer of finance. Lending decisions rest with the lender and depend on your circumstances and their criteria.