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How Franchise Finance Works in Australia

Franchise finance is a specialised category of business lending designed for people buying into a franchise system. Australia has one of the highest rates of franchise ownership in the world, with over 1,300 franchise brands and close to 100,000 franchise units across the country. The franchise sector contributes nearly $200 billion to the Australian economy annually.

Lenders view franchise lending differently from general business lending because franchises come with built-in advantages: a proven business model, established brand recognition, comprehensive training and support, and often, detailed financial benchmarks that allow more accurate risk assessment. This means franchise finance is often easier to obtain than funding for an independent startup.

The total cost of buying a franchise varies dramatically by brand and industry. A small mobile services franchise might cost $30,000 to $50,000, while a fast-food restaurant franchise could require $500,000 to $1 million or more. Our role is to package your application with the right lender who understands your specific franchise brand and can offer the most competitive terms.

What Franchise Finance Covers

A comprehensive franchise finance package typically addresses several cost components that together make up the total investment:

• Franchise fee: The upfront fee paid to the franchisor for the right to operate under their brand. This can range from $10,000 to $100,000 or more.
• Goodwill: When buying an existing franchise, the goodwill component reflects the value of the established business, customer base, and trading history.
• Fitout and renovation: Most franchise systems require specific fitout standards. This can be a major cost, particularly for retail and food franchises.
• Equipment: Commercial kitchens, point-of-sale systems, vehicles, and specialised equipment required to operate.
• Stock and inventory: Initial stock purchase to launch or continue operations.
• Working capital: Cash to cover the first 3 to 6 months of operating expenses while the business builds revenue.

Goodwill Lending for Franchise Purchases

One of the most important aspects of franchise finance is goodwill lending. When you buy an existing franchise business, a significant portion of the purchase price is typically attributed to goodwill — the intangible value of the established business above its physical assets.

Not all lenders will fund goodwill, and those that do have varying policies. Strong, well-known franchise brands with consistent performance records attract higher goodwill lending ratios. Some lenders have approved panels of franchise brands where they have pre-assessed the system and established lending parameters, making the approval process faster and more predictable.

The key factors affecting goodwill lending include the franchise brand's reputation and financial track record, the specific outlet's trading history and profitability, your experience and financial position, lease terms and location quality, and the overall strength of the franchise agreement.

Preparing Your Franchise Finance Application

A well-prepared franchise finance application significantly improves your chances of approval and the terms offered. Essential documents include the franchise disclosure document and agreement, a detailed breakdown of all costs (franchise fee, fitout, equipment, stock, working capital), the outlet's historical financial statements (for existing franchise purchases), your personal financial position statement, proof of your deposit or equity contribution, and your resume highlighting relevant experience.

We recommend engaging with us early in the franchise buying process, ideally before signing the franchise agreement. This allows us to provide a pre-assessment of your borrowing capacity, identify the most suitable lenders, and ensure your expectations around deposit requirements and repayments are realistic before you commit.