Franchise Funding Myths vs. Reality

“You have to be a millionaire to buy a franchise.”

Not even close. Plenty of service-based franchises start around $100K and several are lower. What you actually need is solid credit, a savings reserve (usually ~$20K on top of your capital contribution), and roughly 10–15% of the total project cost as skin in the game. The $1.5M McDonald's figure people think of is the outlier, not the baseline — it's just the one everybody's heard of.

“You need 20% of your own cash to qualify.”

The percentage depends on what you're buying. Banks price the buyer's capital contribution to risk. High-buildout concepts — restaurants, gyms, anything involving permits, landlord negotiations, and moving walls — trend closer to 20–30%. Service businesses with fast cash conversion (painting, home inspection, cleaning, vending) can be 10–15%. And this isn't a down payment you hand to the bank. It's capital you earmark for the business, sitting in your account where the bank can verify it. You keep another ~$20K in reserve on top of that to prove you can absorb a slow month.

“You have to pay the franchise fee using your own cash.”

Almost the opposite. In most deals the bank pays the franchise fee at closing — alongside build-out, equipment, initial inventory, and working capital — all from a single SBA loan. Banks prefer to pay vendors directly by invoice, which also means any deposits you've already made to the franchisor get credited back against your cash-to-close. The right play is to coordinate with the franchisor and the bank so the fee flows through the loan, not out of your personal account.

“Undercapitalization is the #1 killer of new franchises.”

This one is real — and it's the myth that isn't a myth. Owners borrow just enough to open, don't build in enough runway for a realistic revenue ramp, and run out of cash before the business stabilizes. The fix isn't to borrow more for the sake of borrowing. It's to plan against a realistic downside, not the pitch-deck scenario. A well-built funding plan carries enough working capital to cover operations for the time it actually takes a new location to hit breakeven — which is almost always longer than the FDD Item 7 range suggests. Al's framing: grow or go. Build the capital stack for either outcome.

“You can get an SBA loan for any franchise.”

The franchise has to be on the SBA Franchise Registry. Some don't qualify. Some don't bother applying. And even for registered brands, a bank can decline based on recent failure rates in that concept — because it's the bank's capital at risk, and they want to stay in good standing as a Preferred Lending Partner. The first question on any funding call should be: is this brand registered, and which PLP lenders are actively funding deals in this concept right now?

“Wait until deep in validation to start the funding process.”

Lining up funding first is the move — the earlier, the better. Buyers who know what they qualify for going into Discovery Day negotiate differently, ask sharper questions, and don't fall in love with a brand they can't finance. Too many buyers reach signing day and only then discover they don't qualify for the structure they need. The 30–45 minute pre-qualification call belongs before Discovery Day, not after.

“Just use the franchisor's in-house funding team.”

Depends on the franchise, but usually suboptimal. Many in-house financing teams only work with one or two banks — which means if that bank's appetite doesn't fit your deal, you're either declined or pushed into weaker terms. An independent strategist works with a network of lenders (Al's network is 19 banks), can match your deal to the right one, and can withdraw from one bank to re-submit to another if the first comes back with a soft no. That optionality is where most of the real value shows up — and it's also the reason why the same deal can get funded at bank #2 after being declined at bank #1 for reasons that had nothing to do with the borrower's fundamentals.

“Just go to your local bank or credit union — simpler is better.”

Most local banks either don't fund SBA loans at all, or they take the application and farm it out to a partner bank somewhere else — which adds layers, delays, and loss of control over which underwriter ultimately sees your file. The banks worth working with fund SBA loans directly from the location you're dealing with, and have decision-makers you can actually reach. The corner-bank approach works occasionally. It fails often — and when it fails, you've burned weeks you can't get back.

“A high credit score is enough to qualify.”

Credit score is one factor, not the factor. Banks evaluate the whole picture: income, debt-to-income ratio, credit utilization (ideally under 35% per card), and credit history depth — how long your accounts have been open, how many types of credit you've managed, what your repayment track record actually shows. Al has a client with a 760 FICO who's struggling to qualify because the file is thin: no mortgage, limited depth, not enough history to demonstrate how he handles credit over time. The score is the headline. The substance underneath is what decides the outcome.

“If I've been laid off, I can't qualify for franchise funding.”

Active income helps, but it isn't the only path. Savings plus a ROBS rollover can substitute — the bank needs to see that you can cover both the loan payment and your personal living expenses for roughly six months until the business cash-flows. For buyers still employed and planning to quit: don't quit until the loan closes. Active employment strengthens the file materially. Gift letters from family are another path many buyers don't know about. The point is: no single profile is a dealbreaker — the work is finding the lender and the structure that fits your situation.