A franchise resale is financed like any other acquisition, most often with an SBA 7(a) loan, but with a third party in the deal: the franchisor, whose approval of the buyer, transfer terms and any required remodel all feed into the loan. Lenders underwrite the specific unit's own tax returns and P&L, not the brand's system averages, and they check that the franchise agreement, plus any renewal, runs at least as long as the loan. SBA lenders also confirm the brand is eligible for the program. Remodel costs belong in the project costs from the start.
- Usual financing
- SBA 7(a), up to $5 million
- Buyer's minimum injection
- 10% of total project costs, remodel included
- What lenders underwrite
- This unit's own history, not system averages
- Franchise term
- Should run at least as long as the loan
- Franchisor's role
- Approves the buyer and sets the transfer terms
What makes a resale different
A franchise resale is the purchase of a location that is already open and trading under a brand, from the franchisee who runs it. For a lender it has real advantages over a new franchise: there is a sales history, trained staff, a lease in place and a customer base. It also has features an ordinary acquisition does not. The franchisor decides whether the buyer may take over, on what terms, and at what cost. The business's right to operate lasts only as long as the franchise agreement. And the numbers a buyer is shown most often, the brand's published averages, are not the numbers a lender uses.
| Question | Ordinary acquisition | Franchise resale |
|---|---|---|
| Who must approve the sale | Buyer and seller, plus consents under key contracts | Also the franchisor, which approves the buyer and the transfer |
| How long the business can operate | Indefinitely, subject to the lease | For the remaining franchise term and any renewal the franchisor grants |
| Extra costs at closing | Ordinary closing costs | Transfer fee, training, and often a required remodel |
| Earnings evidence | The business's own records | The unit's own records; brand averages are background only |
| Operating standards | Set by the owner | Set by the franchisor, including capital spending |
The franchisor's approval, and what it costs
Almost every franchise agreement lets the franchisor approve or refuse a transfer, and many give it a right of first refusal to buy the location itself on the same terms. The approval process is the franchisor's own, and it runs alongside the buyer's financing, not after it. What it usually involves, and why each step matters to the loan:
| Franchisor step | What it means for the financing |
|---|---|
| Buyer application and approval | The franchisor reviews the buyer's finances and experience; lenders want its approval, or clear progress toward it, before closing |
| Right of first refusal | The franchisor may match the deal; lenders wait until it has waived the right |
| Transfer fee | A cost of the deal that belongs in total project costs, and so in the equity injection calculation |
| Training for the new owner | Usually required before closing; it sets the earliest realistic closing date |
| New franchise agreement or assignment | Decides how many years the buyer has left to operate, which lenders test against the loan term |
| Remodel or reimage requirement | A capital cost the lender must see priced and funded at closing |
| Seller's release and cure of defaults | Any royalties or fees the seller owes must be settled, often out of the sale proceeds |
Most franchisors also require the buyer to sign a guarantee of the franchise agreement, separate from the lender's guarantee. Buyers should read both: the franchise guarantee is a second personal obligation beside the lender's, and royalties and marketing fees are paid from the same cash flow as the loan, ahead of anything left for the owner. Where the location is leased, the landlord's consent is a second approval running in parallel; lease assignment and the acquisition loan covers it.
Required remodels belong in the project costs
Franchisors often make transfer approval conditional on bringing the location up to the brand's current standards: a new interior package, updated equipment, new signage. The seller may have deferred it for years in anticipation of selling. For the buyer it is a real cost, due shortly after closing, and for the lender it is a use of funds that has to be paid for.
The cleanest approach is to price the remodel before the loan is sized, with a contractor's bid or the franchisor's estimate, and include it in total project costs. On an SBA 7(a) loan, the buyer's minimum injection is 10% of total project costs, so a remodel added late raises the equity the buyer must bring, not just the loan. A worked example in plain numbers: a buyer plans total project costs of 1,500 and has 150 of injection ready. The franchisor then requires a remodel of 200. Project costs become 1,700, the minimum injection becomes 170, and the buyer is short by 20 before the lender has asked a single question. The same arithmetic applies to the transfer fee, training costs and any working capital the location needs.
A remodel discovered after the loan is approved changes the sources and uses, the injection and often the approval itself.
Where the remodel is large, lenders also ask how the location will trade while the work is done, and whether the forecast assumes a sales lift from the remodel. They usually underwrite the loan on historical results without the lift. Sources and uses for an acquisition shows how every cost finds a source.
The franchise term against the loan term
A lender will not lend for longer than the business has the right to operate. SBA 7(a) maturities run up to 10 years for working capital and goodwill, up to 10 years for equipment (15 if its useful life supports it), and up to 25 years for real estate. From 1 October 2026, under SOP 50 10 8.1, change-of-ownership loans amortize over no more than 10 years except the real estate share. Lenders therefore look at the years left on the franchise agreement, plus any renewal the buyer is entitled to, and compare them with the loan's maturity.
- Assignment of the existing agreement. The buyer takes over the seller's agreement with whatever term remains. A location with only a few years left is a problem unless the buyer has a contractual right to renew.
- A new agreement. Many franchisors require the buyer to sign the current form of agreement for a fresh term. That solves the term problem but may bring the current royalty, marketing fund and remodel terms, which can differ from the seller's. Lenders underwrite the buyer's terms, not the seller's.
- Renewal conditions. A renewal right that depends on a future remodel, or on the franchisor's discretion, is weaker than one that is automatic. Lenders read the conditions.
The lease has to line up too: a lender wants the lease term, with options, to cover the loan as well. A long franchise term at a location whose lease ends early is not a long franchise term.
SBA eligibility for franchise buyers
SBA lends to franchisees, and a resale is a change of ownership like any other: the buyer injects at least 10% of total project costs, a seller note counts toward up to half of that only on full standby for the life of the SBA loan, every owner of 20% or more guarantees, and SBA prohibits an earnout to the seller. Where the amount financed, less appraised real estate and equipment, exceeds $250,000, an independent business valuation is required, and the loan cannot exceed it. The seller may consult for up to 12 months, or up to 24 months under SOP 50 10 8.1 from 1 October 2026, but cannot stay on as an owner, officer or employee. How SBA 7(a) loans finance a business acquisition covers the program end to end.
On top of those rules, the brand must be listed in SBA's Franchise Directory, which records the franchise agreements SBA has reviewed for how much control the franchisor has over its franchisees. The lender checks the listing, and whether the agreement the buyer will sign is the version SBA reviewed. A buyer should ask for that check before signing the letter of intent: if the brand is not listed, the SBA route is not available on the timetable the seller expects. SBA-wide lending figures for the industries where franchise resales are most common are on the data pages for limited-service restaurants, full-service restaurants, hotels and motels and fitness centers.
Unit-level figures, not system averages
A franchisor's disclosure document may include figures on how its locations perform on average. Buyers find them reassuring, and brokers quote them. Lenders treat them as context. The loan is repaid from this location's cash flow, and a location in a weak trade area, with a poor lease or a tired team, can sit well below the system average for years.
What lenders ask for is the unit's own record: the business tax returns for two to three years, the P&L and balance sheet, a year-to-date P&L through last month-end, the debt schedule, and the letter of intent. The latest full year is essential, never an older one. Two issues are specific to franchises:
- Multi-unit sellers. A seller who owns several locations in one company files one tax return for all of them. The lender needs a P&L for the unit being sold that reconciles to that return, with shared costs, such as the owner's salary, a district manager or central bookkeeping, allocated sensibly. Figures for one unit that cannot be tied to a return are hard to underwrite; see seller financials vs tax returns.
- Royalty and sales reports. Franchisors collect royalties on reported sales, so their records of the unit's sales are an independent check on the P&L. Lenders value them, and buyers should ask the seller to authorize their release.
Lenders then adjust for what changes under the buyer: a market salary for the owner, any difference in royalty or marketing rates under a new agreement, and the remodel's cost. Coverage is tested after those adjustments. SBA requires at least 1.15x; from 1 October 2026, a change of ownership must show 1.25x on historical results. Industry pages go further for the most common franchise categories, including quick-service restaurants, hotels and gyms.
Transparent's financing model for a franchise resale starts from the unit's own figures, shows the adjustments under the buyer's franchise terms, and puts the transfer fee and remodel in the sources and uses, so the lender reads one reconciled file. It is part of the lender package, built in a day once the documents are in, and placed with lenders in a book where 278 write SBA 7(a) and 504.
Common questions
- Do I need the franchisor's approval before a lender will approve the loan?
- Lenders can underwrite while the franchisor's process runs, but they will make its approval, and any waiver of its right of first refusal, a condition of closing.
- Can the remodel the franchisor requires be financed?
- Usually, if it is priced and included in total project costs when the loan is sized. On an SBA loan that also raises the minimum equity injection, which is 10% of total project costs.
- What if the franchise agreement has only a few years left?
- Lenders will not lend for longer than the business can operate. The buyer needs a renewal right or a new agreement whose term, with the lease, covers the loan.
- Will a lender use the franchisor's average unit figures?
- Only as context. The loan is underwritten on this location's own tax returns and P&L, adjusted for the buyer's salary and franchise terms.
- Is every franchise brand eligible for SBA financing?
- No. The brand must be listed in SBA's Franchise Directory, and SBA lenders check the listing before approving the loan. Ask the lender to check before signing the letter of intent.