Business Ownership Coach | Investor Financing Podcast — When you are deciding which franchise to buy, you are not just picking a brand. You are picking a financing profile. The franchise you choose will shape your SBA approval odds, your loan terms, and the cash you must bring to the table. I walk entrepreneurs through these tradeoffs every day. In this article I explain what lenders look for, how brand performance affects rates and leverage, and the compensating factors that can turn a “maybe” into a “yes.”
What lenders evaluate when reviewing a franchise brand
Lenders do not see every franchise as equal. The first things underwriters look for are objective metrics: number of open locations, longevity of the brand, and historical loan performance. Many of the bigger bank lenders have hard thresholds. For example, some banks will not entertain an emerging brand unless it has at least ten locations. That threshold exists because banks want sufficient historical data to assess default risk.
Another critical input is the franchise’s registration and registry status with the SBA directory. A listing alone does not guarantee approval, but it is a necessary checkbox for many lenders. If a brand is well established, with hundreds of locations and a low default history, lenders are comfortable extending more aggressive terms. If the brand is newer—say one to nine locations—the file is scrutinized harder and may have to go to a lender who specializes in emerging franchises.
As your Business Ownership Coach | Investor Financing Podcast guide, I always tell clients: know the lender landscape before you fall in love with a brand. Matching the brand to the right lender reduces friction, speeds approvals, and often lowers your required equity injection.
Why strong franchise performance equals better loan terms
When a franchise demonstrates consistent, historical performance, lenders treat loans differently. Projection-based lending is common for franchises, but projections carry risk. The strength of the franchise serves as a form of credit enhancement. If a franchise network has demonstrated that owners succeed and defaults are rare, underwriters will reward that with higher percentages of financing and better terms.
To be concrete: a bank like Huntington Bank commonly funds 80 percent of total project cost for many franchise deals. But for top-tier nationally proven brands combined with top-tier borrowers, some lenders will go up to 90 percent on limited deals. That extra ten percent can be the difference between moving forward or needing to pull capital from retirement or other less desirable sources.
Keep in mind though: fewer lenders will be willing to accept aggressive terms without solid data. There are lenders who will provide 90 percent financing more readily, but there are tradeoffs in underwriting philosophy, speed, and other covenants. Part of successful franchise financing is navigating those lender nuances so your file is presented to the right institution.
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How lenders use FranData and SBA registry metrics
Some banks rely heavily on third party ratings like FranData to gauge fundability. FranData scores franchises on a broad set of risk indicators and historical performance. A high FranData score signals fundability. A low score creates additional barriers and forces lenders to demand more from the borrower in the form of higher equity or stronger compensating factors.
Because franchise lending is often projection-based, having credible history at the brand level is a saving grace. A lender can point to hundreds of locations with low defaults and say, “We have comfort in the projections.” Conversely, brands with thin records or inconsistent performance force underwriters to compensate by raising the threshold for borrower qualifications.
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Liquidity, credit score, and compensating factors
Not all weaknesses are fatal. Lenders look for compensating factors when a franchise brand is weaker or emerging. Compensating factors include strong personal liquidity, excellent credit, relevant business or management experience, and clean personal financial statements.
One of the clearest trends I see: liquidity matters. Cash or easily liquidated assets in the bank make a different story versus the same dollar amount tied up in retirement accounts. For example, a borrower who is not yet drawing a salary but has $400,000 in liquid assets will be treated much more favorably than a borrower with $50,000 liquid and significant monthly obligations.
Another factor that has shifted recently is credit scoring thresholds. Some of our go-to banks increased their required SBA credit score from 165 to 180 as the underwriting climate tightened. That change alone excludes a meaningful set of borrowers who previously qualified. That makes compensating factors more important than ever: strong liquidity, transferable operating experience, and spotless credit can offset an emerging brand or other perceived risk.
What happens when you choose an emerging brand?
Choosing an emerging brand does not make financing impossible, but it changes the game. Emerging brands require a lender who will do common sense underwriting and who is comfortable with projection-based deals without extensive historical data. Those lenders exist, but they are less common and often have stricter borrower-level requirements.
If you have low post-closing liquidity and hope to put down only 10 to 20 percent on an emerging franchise, expect more pushback from underwriters. Conversely, if you are choosing between two opportunities and one brand will require a smaller down payment with the same or better upside, it may make sense to pick the brand that opens lending doors instead of closing them.
How to structure your file to win over underwriters
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Winning lending decisions is as much about presentation as it is about substance. Here are the practical steps I recommend as your Business Ownership Coach | Investor Financing Podcast advisor:
- Pre-screen lenders based on the franchise profile. Match emerging brands to lenders who accept them on a regular basis.
- Maximize documented liquid assets. Cash, marketable securities, or bank statements that show reserves carry weight. Retirement funds count, but not as highly.
- Improve your SBA credit score where possible. Small fixes can move you above tightened thresholds.
- Position transferable experience clearly. If you have management or operational history, show how it applies to the franchise model.
- Prepare a clean, well-organized loan package. Anticipate underwriter questions and answer them proactively.
When an underwriter can see a consistent, credible story—strong brand metrics or strong compensating factors—your odds of approval and favorable terms rise dramatically.
Choosing the right lender matters as much as the brand
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Lenders bring different appetites to franchise deals. Some of the largest banks are conservative and require established brands with many locations. Others are more flexible and will underwrite based on the borrower story and compensating factors. A crucial part of funding is getting the file in front of a lender with the right underwriting philosophy.
There are pros and cons to each lender. Large banks may offer competitive rates and larger percentages when the brand qualifies. Niche lenders may be more willing to consider projection-based deals and emerging brands but may impose higher rates or require other covenants. As your Business Ownership Coach | Investor Financing Podcast consultant, I emphasize that lender selection should be part of your franchise due diligence.
Final takeaway: your franchise selection is a financing decision
Your franchise selection is dual-purpose: it must fit your operational goals and your financing reality. Strong brand performance reduces lender risk, improves loan-to-cost ratios, and can lower the amount of cash you must inject. If you choose an emerging brand, be ready to show strong compensating factors like liquidity, credit, and experience.
Prepare the right loan file, pick the right lender, and position your compensating factors clearly. Do that, and you convert potential roadblocks into approval. If you want help matching brands to lenders or preparing your loan package, use a coach who understands both sides of this equation. Business Ownership Coach | Investor Financing Podcast is my approach: align the business choice with the financing strategy so your odds of success are maximized.