Franchise Transfer Equity Injection

searcher profile

December 10, 2023

by a searcher from Georgia Institute of Technology in Austin, TX, USA

Hey everyone!

I'm just beginning my search journey and leaning very heavily towards existing franchises.

I would love to better understand general equity injection requirements from the franchisor and/or debt lenders. Most of the material I've reviewed centers around new franchise territory acquisitions, not transfers. Recently, I've run into a deal stating that the franchisor is requiring a 25% equity injection.

Is this negotiable? Can seller financing contribute to the injection? Other advice, feedback, and guidance welcomed!

Thanks!

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commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
Excellent questions. Unfortunately you are going to have to talk with the franchisor for each franchise you are looking at to find out their requirements. Usually the minimum equity requirement is for start-ups. It may be different if you are acquiring an existing franchise that is performing already.

Generally from an SBA perspective the required down payment is usually 10% of the purchase price. You can potentially get away with even less if the seller carries back a note that is on standby for at least two years. You could need to put more more down depending on what the cash flow requires as compared to your purchase price. I find most franchises get financed via SBA loans due to the 10 year loan term offered, the minimal required down payment, and due to the fact most franchise acquisitions are heavy on goodwill versus the fixed assets most conventional lenders prefer to lend against. Although there are some non-bank franchise lending options available as well.

I would be more than happy to have a discussion and talk through the various financing options that exist. You can reach me here or directly at redacted Good luck with your search.
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Reply by an intermediary
from Wisconsin Lutheran College in Brookfield, WI, USA
Normally franchises are concerned with net worth and liquidity requirements vs down payment on a deal. I would be a little wary of any franchise getting that involved in the transaction. I have worked with some franchises that have the same net worth/liquidity requirements as a startup, some have different, some don't care so long as you can secure financing. Each franchise will be different.

Generally speaking, negotiating with a franchise will be difficult. You are buying into their franchise agreement and they want to keep that uniform. I have seen some flexibility in royalty payments if there is a major difference in the seller's existing agreement vs the new one, but that's only been to cushion the buyer as they ramp up to the terms of the new one.
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