Buying a Franchise in Australia: Check Loan Conditions

A lender’s willingness to finance a franchise does not prove that it is a sound purchase. Nor does an initial approval mean the money will be available when you need it. Before joining Australia’s franchising community, check how the proposed loan works alongside your franchise commitments. The aim is to avoid becoming legally committed to a purchase you cannot fund on acceptable terms.

1. Find out what the finance approval actually covers

Ask the lender to explain, in writing, whether its offer is indicative, conditional or ready for drawdown. These descriptions can differ between lenders, so focus on the outstanding requirements rather than the label.

A conditional offer may still depend on a valuation, evidence of your contribution, satisfactory transaction documents or other checks. Establish what must happen before funds are released and when the approval expires.

Give the lender an itemised purchase and establishment budget. Ask which items it will finance and which you must pay yourself. Do not assume approval for the business purchase also covers stock, equipment installation, professional fees or payments due before settlement.

Questions to resolve include:

• Is the approved amount sufficient for the final transaction, not just the advertised franchise price?
• When must you contribute your own money, and what evidence is required?
• Will funds go to you, the seller or equipment suppliers?
• Can the lender change or withdraw the offer before drawdown, and on what grounds?
• Does a delayed opening require a fresh application or updated financial information?

Treat any lender relationship promoted by the franchisor as an option to assess, not independent confirmation of the franchise’s quality.

2. Match the loan to the franchise timetable

Prepare a single timetable showing when each agreement is signed, when payments become due, when finance becomes available and when trading is expected to begin. Include the franchise agreement, business purchase contract and any equipment finance documents.

Australia’s mandatory Franchising Code of Conduct regulates the franchising community. A new Code commenced on 1 April 2025, with some provisions applying from 1 November 2025. Franchisors generally must provide the franchise agreement, disclosure document and a copy of the Code at least 14 days before you sign. That disclosure process is not finance approval and does not reserve loan funds.

Ask your solicitor whether appropriate finance conditions should be included in the transaction documents. A useful condition needs to address more than obtaining any loan: discuss the required amount, acceptable terms, deadline and consequences if finance is unavailable. The other parties must agree to any proposed condition.

Do not assume that ending a franchise agreement during an applicable cooling-off period automatically cancels a separate loan or equipment finance contract. Have your solicitor check each document and the interaction between them before you sign.

3. Test the repayment structure, not just the interest rate

Compare offers using the total repayment obligations and fees, rather than the headline rate alone. Request a repayment schedule and a written explanation of establishment fees, ongoing charges, early repayment costs and any final balloon payment.

Your accountant should model repayments using the proposed opening date and a delayed-opening scenario. If interest or repayments start before trading, identify how those payments will be funded. For variable-rate borrowing, test the effect of higher interest costs without assuming a particular future rate.

Compare the loan’s final repayment date with the franchise term. If borrowing continues beyond that term, ask how the remaining debt would be repaid without assuming renewal or a successful sale. If the loan ends earlier, check whether the shorter repayment period creates unaffordable monthly demands.

For equipment finance, establish who owns the equipment, whether there is a purchase option and what remains payable when the arrangement ends. A manageable monthly payment may conceal a substantial final obligation.

4. Understand the lender’s continuing conditions

Loan obligations can extend beyond making repayments. Ask the lender to identify requirements concerning financial reporting, insurance, additional borrowing, ownership changes and the assets securing the debt.

Have your solicitor explain what counts as default and what remedies the lender can use. In particular, check whether losing the franchise, ceasing trading or breaching another agreement could affect the finance arrangement even when repayments are up to date.

Also establish whose consent is needed if you later sell the business or replace financed equipment. Franchisor consent and lender consent are separate matters; obtaining one does not necessarily satisfy the other.

Practical takeaway: Before committing, obtain written finance terms, a clear list of drawdown conditions and a payment timetable. Ask your accountant to test affordability and your solicitor to check that the purchase and finance obligations fit together.