Financing your next franchise location

Most franchisees expect the second store to be easier to fund than the first. They have a trading history now, a relationship with the franchisor, and a track record the bank can see. It feels like the hard part is behind them.

Sometimes it is easier. Often it is not, and the reason catches people out: the first store was assessed on its own, and the second one is assessed on both. Your existing store stops being just a credential and becomes part of the exposure. If it is carrying debt, that debt is now in the calculation.

What actually gets funded

A franchise location is not one purchase, and lenders do not treat it as one. Splitting it correctly is usually the difference between a workable structure and an expensive one, because the components attract different terms, different security and sometimes different lenders.

Structuring these as one blended facility is simpler to arrange and usually more expensive over the life of it. Equipment at an equipment-finance rate over the asset's life, and fit-out over a term that matches the agreement, will normally beat one large term loan covering everything. That layering is exactly what a well-built submission proposes rather than leaves to the lender to work out.

Accreditation, and what it is actually worth

Major lenders maintain internal panels of accredited franchise systems: brands whose model, failure rates and trading data they have already assessed. Accreditation generally requires a system of reasonable scale, commonly upwards of thirty locations, though the threshold varies by lender.

If your brand is accredited, the practical effect is meaningful. Lending against the franchise investment commonly reaches somewhere around 60% to 70% for a strong accredited system, against considerably less for an unaccredited one, and the file moves faster because the model itself is not being re-litigated. With property security in the mix, the total funded proportion can go higher again, sometimes to the whole cost, because the security rather than the franchise is doing the work.

• Accreditation is lender by lender, not universal. A brand on one panel may be absent from another, which is a reason not to assume your existing bank is the right one for store two.
• It reflects a view on the system, never on you. An accredited brand does not carry a weak operator, and a strong operator in an unaccredited system is still fundable on the numbers.
• It can be withdrawn. A system that has had failures or closures may quietly come off a panel, and franchisees usually find out at application.

Your loan term is capped by your franchise agreement

This is the structural constraint most franchisees do not see coming, and it changes the arithmetic more than the interest rate does.

Lenders will not usually write a term that runs past the end of your franchise agreement, because at that point your right to operate the business securing the loan expires. Terms of around ten years are common, but if you are buying into a site with six years left on its agreement, expect the facility to be written over something close to six.

That is the same store, the same price and the same rate, needing $57,300 a year more in earnings purely because of how much agreement term is left. It is also the reason renewal timing is worth raising with the franchisor before you commit, not after. A site with a renewal option that can be exercised early is a materially more fundable site.

Your existing store: credential and exposure at once

A credit team assessing store two will consolidate the position. That means the earnings of the store you already run, less the debt service you already carry, plus the projected earnings of the new one, less the debt service it will create. Cover is tested on the combined position at an assessment rate above the one you are quoted.

Two consequences follow, and they point in opposite directions.

• The good one: a mature store with real surplus is genuine capacity, and its trading history is far better evidence than any forecast for a site that does not exist yet.
• The awkward one: if store one is still carrying its original acquisition or fit-out debt, that debt service is in the calculation. Franchisees who bought their first store three years ago frequently find their capacity is thinner than they assumed, because they were thinking about profit and the lender is looking at cover.

There is also a timing question worth raising early. Refinancing or restructuring the existing store's debt, before applying for the second, sometimes moves the combined position more than anything you can do to the new application. Whether it helps depends entirely on your numbers, and it is not a recommendation to switch anything. It is a position worth seeing before you choose the order you do things in.

The security question, and your house

Franchise lending is very often secured against residential property, because a fit-out and a franchise fee are poor security on their own. That is normal, and it is frequently what makes a deal possible at all. What deserves attention is how far the security extends.

Cross-collateralising store two against store one, and both against the family home, gives the lender the strongest possible position and gives you the weakest. If one store struggles, the security net has already been cast over everything else. Whether that structure is acceptable is a decision for you and your solicitor, but it should be a decision rather than a default, and it is a great deal easier to negotiate before the facility is documented than after.

Entity structure and franchisor consent

• Franchisors commonly set minimum performance standards before granting a second site. If store one has been under system average, that conversation comes before any lending conversation.
• Some systems require all stores under one entity; others prefer or permit one entity per site. This affects your lending structure, your security position and your tax position, so it needs your accountant and your solicitor before it is settled.
• Where you are buying an existing store from another franchisee, the franchisor's consent to transfer is required. Under the Franchising Code, that consent cannot be unreasonably withheld, and if the franchisor does not respond within 42 days of receiving the request and the last of the information sought, consent is taken to have been given.
• Since the new Franchising Code commenced on 1 April 2025, franchisors must disclose significant capital expenditure a franchisee may be required to incur, and discuss it with them. Read that disclosure carefully: a mandated refurbishment falling in year three changes your cash flow and your borrowing capacity, and it is far better found now than later.

What a credit team actually reads on a multi-unit file

Franchise systems produce something most small businesses cannot: comparable data. A credit assessor will use it, and a submission that anticipates that reads very differently to one that does not.

• Your existing store's performance against system average, by revenue and by margin. Above average is a strong argument. Below average needs an explanation you offer rather than one they infer.
• The target site's own history if it is an existing store, and comparable stores in the network if it is not.
• Whether the earnings you have presented survive normalisation. Owner wages, related-party rent and one-off costs get tested here exactly as they would in any acquisition.
• Debt service cover on the consolidated position at a stressed rate, not the offered one.
• How much revenue could fall before cover breaks. This is the number that decides marginal files, and it is worth calculating before anyone else does.

That last point is worth dwelling on. We worked on a second-site application for a franchisee whose first major bank declined on serviceability. The deal was not weak. The case was. Rebuilt from the system's own centralised sales reporting, the BAS lodgements and the target store's trading history, and stress tested at a conservative rate, the file showed cover of roughly three times on interest and around a 20% revenue buffer before cover broke. It was approved and funded in full across a layered structure. Nothing about the business changed between the decline and the approval. What changed was what the lender could see.

The order worth doing this in

• Confirm the franchisor will grant you the site, and on what performance conditions, before spending anything.
• Find out how much agreement term the site carries, and whether renewal can be brought forward.
• Work out your consolidated capacity, including store one's existing debt service, before you negotiate a price.
• Read the capital expenditure disclosure and put any mandated refurbishment into the forecast.
• Decide the entity and security structure with your accountant and solicitor, rather than accepting the first one offered.
• Build the submission with the system's own comparable data in it, and stress test it before the credit team does.

Second sites fail on funding far more often than they fail on demand. The demand is usually real, the operator is usually capable, and the structure is usually the thing that was never properly worked out. It is the cheapest part of the whole exercise to get right.