Franchising offers a proven business model, a recognised brand and a support network, but getting started can be expensive. Setup costs add up quickly, and for most franchisees, finance is the first hurdle.

How you borrow can matter as much as which franchise you choose. The right loan, taken out at the right time and for the right amount, gives a new business room to grow. The wrong one can put pressure on cash flow before the doors have even opened.

That’s where a few simple dos and don’ts make a real difference.

DO: map out the full cost of the franchise before you borrow

The franchise fee is only one part of the picture. Fit-out, equipment, stock, training, vehicles and working capital for the first few months all need funding, along with ongoing royalties and marketing costs.

Having a clear understanding of what the overall setup cost will be before you apply helps you borrow the right amount, not just the headline figure. It also helps you avoid going back to a lender for more once the business is already under way.

DO: ask your franchisor what funding support they offer

Franchisors know what it typically costs to open a site, and some have existing relationships with lenders that understand their model. It’s worth asking what start-up costs franchisees usually run into and how others in the network have funded their launch.

Their answers give you a more realistic budget to take into any lender conversation.

DO: match the loan type to what you’re funding

Different costs suit different products. If you need to finance commercial vehicles or equipment, such as a work van or commercial kitchen gear, a chattel mortgage lets you own the asset from day one, with the asset itself as security for the loan according to Savvy Finance.

An unsecured loan suits smaller or faster needs, while a business line of credit can smooth out cash flow when income is uneven and allow you to access funds when you need them rather than repeatedly applying for more loans.

Matching the product to the purpose keeps repayments manageable and avoids tying up funds in the wrong place.

DO: compare lenders, including those that know franchising

Not every lender views franchises the same way. Some understand how franchise models work and may assess an application more favourably than lenders that don’t.

A broker can compare business loan options across a panel of lenders on your behalf, which saves time and helps you see what’s available beyond your own bank. Savvy works with lenders that fund franchise businesses and can help you compare franchise loan options in one place.

DON’T: sign the franchise agreement before your funding is approved in principle

Signing the agreement and paying a deposit before you know finance is available puts you in a difficult position. If a lender declines or offers less than you need, you could be committed to a contract you can’t afford.

The Franchising Code of Conduct gives you at least 14 days to review the disclosure document and franchise agreement before you sign or make a non-refundable payment. Use that time to get an approval in principle in place, so you know what you can borrow before you commit.

DON’T: forget ongoing franchise costs when calculating repayments

Royalties, marketing levies and technology fees continue whether the business has a strong month or a slow one. Your loan repayments sit on top of them.

Stress-test your cash flow against slower months, particularly in the first year, to confirm you can cover every commitment comfortably.

DON’T: borrow the maximum just because a lender will approve it

What a lender will approve and what the business can comfortably repay aren’t always the same thing. Revenue often takes time to build, and higher repayments early on can squeeze cash flow when it matters most.

Borrowing a little less than your limit (if you’re able to do so) leaves a greater buffer for unexpected costs.

DON’T: skip professional advice

Franchise agreements are detailed legal documents, and the way you structure your finance can have tax implications.

A lawyer experienced in franchising can review the agreement, while an accountant can advise on how the loan fits your tax position. Both are worth the cost before you commit.