Considerations for buying a franchise
November 21, 2025 | 8 minute read
Key takeaways:
- Purchasing a franchise offers the prospect of buying into a business model that has been tested and refined in the market.
- Unlike a startup that must build awareness, a franchise can offer access to a recognized brand with customer loyalty.
- Banks are often more willing to finance a franchise due to its established enterprise value.
In the past five years, more Americans than ever have started new businesses, averaging more than 5 million new business registrations a year, or 40% more than in 2019.1 A key decision these entrepreneurs make is whether to launch an independent business or buy a franchise from a known brand to receive a market-tested business model and extensive institutional support.
Starting an independent business allows entrepreneurs complete control over marketing, location and product; your passion can guide what you build. Launching an independent business has many considerations: You must develop a business plan, study the market, find a terrific location and figure out how to attract customers. Critically, it may be difficult to obtain startup capital for an independent business — lack of capital is still a leading reason more than a third of new businesses fail within five years.2
What is a franchise?
Because of these challenges, many prefer to start a business for themselves by opening a franchise. A franchise is a business partnership where a company licenses its brand, products, services and proven operational framework to an individual or entity, empowering them to run a business under the franchisor’s banner in exchange for a fee.
With more than 3,000 registered franchisors — chains that sell everything from quick-serve meals to doggie dental care — and 300 to 400 new franchisors opening new concepts annually, it’s not surprising that entrepreneurs can find a model that aligns with their personal goals and purchase into a franchise system, adding an estimated 20,000 new units in 2025.3 The fastest-growing franchise businesses today are in personal services, such as early childhood education, beauty and moving and storage.
What are the advantages and disadvantages of buying a franchise?
When you buy a franchise, as franchisee, you are licensed to use the franchisor’s trademark, business model and proprietary knowledge. A well-established franchisor has a business model and strategy that has been well-tested and optimized. The franchisor will also have detailed demographic data and insights on market trends for your area and should be able to model a pro-forma cash flow for your location.
Franchisors want your business to succeed. In every franchise concept, initial and ongoing support are available. Franchisors provide training to owners, management and employees. They may offer local territory exclusivity and marketing and provide technology to support the business, such as online ordering platforms for restaurants. Quarterly, franchisors will help with bookkeeping to ensure financial stability, and at the onset, franchisors provide introductions to experienced preferred vendors, ensuring a successful grand opening.
“Opening a franchise isn’t like going out on your own and opening your own business,” says Jasmin O’Neal, vice president and program development manager for Business Banking Franchise Solutions at Bank of America. “There’s a proven model, demonstrated success and much support.”
Franchisors also have buying power, which is important in today’s volatile markets. A national organization with global supply chains and procurement experts potentially has more expertise and influence to deal with the impact of tariffs, goods shortages and inflation than a sole business owner.
When you become a franchisee, you’re not calling all the shots; by contract, you must adhere to processes and procedures mandated by the franchisor. There are also cost considerations: In addition to the initial purchase price of the franchise (the franchise fee), you pay ongoing royalties, which can run between 4% and 12% of gross sales. Franchisees also often must pay mandated advertising and annual market assessment fees. Depending on the type of business you are running, these fees can have an impact on your net profit.
How much money do you need to buy a franchise?
There are franchises of all sizes. A franchisee can buy a home-based service franchise for as little as $10,000 or buy into a larger concept, including real estate, for more than $5 million. As in the sale of any type of business, the price is determined by a multiple of historical or predicted cash flow.
What are franchise financing options?
Franchisees have many financing options, ranging from bank loans and lines of credit to loans through the Small Business Administration (SBA):
Conventional term loan
Like a home mortgage loan, a business term loan is a lump sum used to buy a fixed asset and requires collateral. This option works best for businesses with an established operating history. “Conventional term loans are typically faster to close and a lower-cost solution,” says Jason Baroni, senior vice president and franchise program development manager at Bank of America.
SBA loans
These loans are government-backed and can only be obtained with SBA-approved lenders. They are term loans of 10 to 25 years and range from $250,000 to $5 million. Because of the government guarantee, SBA loans may have lower interest rates than conventional loans. SBA 504 loans are specifically for fixed assets like land or buildings, and SBA Express loans are used for working capital.
Franchisor credit
Many large franchisors offer financing assistance to help franchisees with franchise fees and startup costs. These may be loans made directly by the franchisor or in partnership with a bank or other lender.
Equipment financing
Franchisees can arrange loans with banks to buy expensive equipment, or they can often arrange to lease equipment, helping reduce startup costs.
Lines of credit
Franchisees can obtain lines of credit, which they can tap for short-term needs, like buying inventory, and are available from banks and other commercial lenders.
Before you sign
Review the Franchise Disclosure Document (FDD)
Mandated by the Federal Trade Commission, the FDD provides critical information for you to consider before you buy. For example, the Financial Performance Representations (Item 19) provides average sales and profits and variation by geography for the chain’s franchises. The FDD also includes the franchisor’s financial statements (item 21), so you can judge its financial strength.
Seek professional advice
Even if you have business experience, you should review the FDD with an attorney and an accountant, preferably with franchise experience. The franchise fee may be your biggest cost, but your accountant can help you consider all projected costs and contingencies. Factor in royalties and advertising fees as well as insurance, utilities, wages and benefits.
Do your homework
You can do your own research on the industry, local markets and locations to check the franchisor’s claims about the potential cash flow and payback timeline. Drive around the neighborhood and talk to shoppers. To understand how well the franchisor lives up to its commitments, talk to local franchisees. Some large chains have active franchisee associations, which can be a valuable resource.
Franchising has enabled many individuals and families to own and build a business of their own. Some have built up sizable enterprises by investing in multiple franchises. There are franchise opportunities in an enormous range of industries, and more possibilities are opening every year. If you think franchising is for you, take the time and effort to do your due diligence. Franchisors want their franchisees to succeed, but you need to do your own homework and reach out to the network of lenders, accountants, consultants and other advisors who can help your business thrive.
Husband-and-wife team powers growth at Primrose Schools
Franchise owners Mohit and Bejal Patel are proving that passion, perseverance and partnership fuel success at the Primrose Schools, a leading provider of early education and childcare.
The husband-and-wife team owns four Primrose Schools franchises — one in San Jose, California; two in the Seattle area; and one in Mt. Juliet, Tennessee. Their leadership earned them the 2024 Franchisees of the Year award from the International Franchise Association. “This recognition reflects the dedication of our teachers and school leaders who deliver quality education to families every day,” said Mohit Patel, a Silicon Valley engineer turned entrepreneur.
To support growth, the Patels refinanced their SBA debt at a lower rate, creating flexibility for expansion into new markets. The Patels work closely with their Bellevue, Washington–based relationship manager, Kun Lee, who helps them manage financing across multiple states. “The Patels are my best clients,” Lee said. “They have clear goals, and they’re doing things right.” Lee admires their focus on finding good people to staff their schools and their strong operational planning.
“We’ve always believed that if we invest in our people and in the health of our schools, everything else will follow,” said Bejal Patel, who often speaks to local media on educational issues on behalf of Primrose Schools.
Bank of America provides franchise owners like the Patels with lending options that give them the ability to scale their operations efficiently while continuing to serve their communities. “I want entrepreneurs like the Patels to know that we can help make the lending process easier than they expect,” said Jasmin O’Neal, vice president and program development manager for Business Banking Franchise Solutions at Bank of America.
With a strong growth plan, disciplined execution and trusted banking support, the Patels are setting a high bar for performance and expansion within Primrose Schools.
Contact a Bank of America franchise specialist for more information.
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