South Africa franchise inquiry puts funding barriers in focus

South Africa’s Competition Commission is examining whether franchise funding requirements prevent capable entrepreneurs from entering and growing within the franchise community. A report published on 27 September 2026 says the market inquiry is considering barriers facing small and medium enterprises, particularly businesses owned by historically disadvantaged persons.

Unencumbered capital under scrutiny

Among the issues identified in the commission’s draft terms of reference are the finance and funding requirements associated with acquiring a franchise. The central concern is whether conditions imposed by franchisors or lenders can restrict access before a prospective franchisee has the opportunity to establish a business.

The report highlights circumstances in which an applicant must have at least 50% of the total investment available as unencumbered funds. The commission is questioning whether requirements of this nature exclude prospective franchisees, particularly historically disadvantaged entrepreneurs, and contribute to the slow pace of transformation within the franchise community.

That figure needs to be read carefully. The research describes a requirement arising in certain circumstances, not a universal rule applying to every franchise opportunity in South Africa. It also does not establish that the commission has found such requirements unlawful or ordered their removal.

For prospective owners, the distinction is important: the inquiry is examining how access works, rather than announcing a new entitlement to funding or a reduction in the capital needed to buy a franchise.

Entry, participation and expansion

The commission’s concerns extend beyond the initial purchase of a franchise. The reported scope includes features of the market that may hinder entry, effective participation and expansion by small and medium enterprises.

This makes the inquiry relevant to more than first-time applicants. Its stated focus also encompasses whether smaller businesses can participate effectively and expand within the franchise community. Businesses owned by historically disadvantaged persons are a particular focus of that examination.

The funding question is therefore not simply whether a franchise opportunity is available. It is whether the conditions attached to acquiring it may exclude entrepreneurs who could otherwise be capable of operating the business.

However, the available report does not quantify how many applicants have been excluded by capital requirements. It provides neither an estimate of affected businesses nor findings comparing different franchise models. The issue remains a concern being examined, rather than a measured conclusion about every franchisor or lender.

Contract terms matter alongside finance

The report also sets out the contractual framework behind a franchise investment. A franchise agreement allows a franchisee to operate a business using the brand and business system owned by the franchisor.

These agreements commonly run for a fixed period, often five years, and renewal is generally not guaranteed when that period ends. This provides important context for anyone weighing up the funding needed to acquire a franchise: the investment sits alongside a contract with a defined duration, rather than an automatic right to operate indefinitely.

Prospective franchisees should therefore consider the capital requirement and the agreement together. Questions about the amount of unencumbered funding required belong alongside questions about the contract’s duration and what happens at expiry.

This is practical due diligence, not a new obligation announced by the inquiry. The research does not report any change to franchise agreement periods or renewal rights.

Wider access must account for lending risk

The report identifies a difficult balance if existing funding requirements are ultimately found to exclude entrepreneurs unnecessarily. Alternatives would need to improve access to finance without requiring lenders to assume risks that could amount to reckless credit under the National Credit Act.

That is a question for the inquiry’s consideration, not evidence that a replacement funding model has already been agreed. The supplied research reports draft terms of reference and concerns under investigation; it does not announce final findings, revised lending rules or a new franchise finance programme.

For South Africa’s franchise community, the immediate significance is the scrutiny of how financial entry conditions affect participation and transformation. Any eventual response will need to address both access and responsible lending.

Practical takeaway: Before committing to a franchise, ask for clear written funding requirements, establish what must be unencumbered, and review the agreement’s duration and renewal provisions. Do not assume the inquiry has already changed the rules.