Franchise Equipment Packages: How to Finance Franchisor-Required Buildouts
Navigate financing for franchise buildouts and equipment packages when your franchisor specifies vendors, costs, and standards.
The Franchise Buildout Challenge
Unlike independent businesses, franchise buildouts must meet brand standards. Your franchisor specifies approved vendors, required equipment, design elements, and construction standards. This eliminates some flexibility but provides predictability—you know exactly what you need to build and what it costs.
The challenge is financing a package deal where you cannot substitute cheaper alternatives. Understanding how to structure financing around these requirements is essential.
Typical Franchise Buildout Components
Most franchise buildouts include several categories:
| Category | Examples | Typical % of Total |
|---|---|---|
| Leasehold improvements | Construction, plumbing, electrical | 40-50% |
| Equipment package | Required vendor equipment | 25-35% |
| Signage and branding | Interior and exterior signage | 5-10% |
| Technology/POS | Registers, software, networking | 5-10% |
| Initial inventory | Opening stock | 5-15% |
| Soft costs | Permits, architect, deposits | 5-10% |
Financing Approaches
Multiple strategies can fund franchise buildouts:
- SBA 7(a) - One loan covers equipment, buildout, and working capital. Most common approach.
- Equipment Financing + Term Loan - Separate equipment financing (often from required vendors) plus construction financing.
- Franchisor Financing Programs - Some franchisors offer or facilitate equipment packages with financing.
- Landlord Contributions - Negotiate tenant improvement (TI) allowances for buildout portion.
- Equipment Lease - Lease equipment, finance buildout separately. Preserves capital.
Working with Required Vendors
Franchisor-approved vendor requirements have financing implications:
- Vendors may offer equipment financing directly
- Package pricing may include financing options
- Equipment specifications are already documented for lenders
- Standardization simplifies appraisals and underwriting
- No shopping for cheaper alternatives (less flexibility, but less work)
Even with required vendors, negotiate. Ask about volume discounts, extended payment terms, delayed delivery, or promotional financing. Approved vendors often have flexibility on terms even if not on specifications.
Landlord Tenant Improvement Negotiations
Landlords often contribute to buildouts in exchange for longer lease terms:
| Market | Typical TI Allowance | Notes |
|---|---|---|
| Strong landlord market | $10-$25/sq ft | Landlord leverage |
| Balanced market | $25-$50/sq ft | Standard range |
| Tenant-favored market | $50-$100/sq ft | Negotiate aggressively |
| Distressed property | $100+/sq ft | Landlord desperate for tenants |
Example: QSR Franchise Buildout Financing
Quick-service restaurant franchise: 2,000 sq ft inline retail location.
| Category | Cost | Funding Source |
|---|---|---|
| Franchise fee | $40,000 | SBA loan |
| Leasehold improvements | $180,000 | SBA loan + $50K TI allowance |
| Equipment package | $120,000 | SBA loan |
| Signage | $25,000 | SBA loan |
| POS and technology | $15,000 | SBA loan |
| Initial inventory | $10,000 | SBA loan |
| Working capital | $40,000 | SBA loan |
| Total project | $430,000 | |
| Landlord TI | ($50,000) | Reduces cash needed |
| Net financing need | $380,000 | |
| SBA loan at 90% | $342,000 | |
| Equity injection | $38,000 |
Timeline Coordination
Franchise buildouts require careful coordination:
- SBA approval must precede lease signing (or include contingency)
- Equipment orders often have 8-12 week lead times
- Construction permits may take 4-8 weeks
- Franchisor construction review adds time
- Training often required before opening
- Build backwards from target opening date
Common Buildout Financing Mistakes
Avoid these errors:
- Underestimating total buildout costs - add 10-15% contingency
- Not securing financing before signing lease
- Ignoring equipment financing options from approved vendors
- Failing to negotiate TI allowances
- Insufficient working capital after buildout
Post-Buildout Financing Needs
Plan for capital needs beyond initial buildout. Equipment upgrades, technology refreshes, and franchisor-required renovations typically arise every 5-7 years. Establish banking relationships during initial financing that can support future needs.
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Read more →Important Disclosure
Not Financial Advice: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. You should consult with qualified professionals before making any financial decisions.
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