Fast Food Franchise Finance
A fast food franchise can cost between $50,000 and $1 million, depending on the franchise.
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If you want to get your foot in the door of the fast food world, a fast food franchise may be an option. With a franchise, you have a brand name to fall back on and you can also receive support to run your business. However, buying a fast food franchise can be expensive. Thankfully, there are a number of loans available.
Fast food franchise finance options
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
What is a fast food franchise?
A franchise allows a third-party operator (the franchisee) to use the business's name, branding and model. They also receive ongoing training and marketing support from the franchisor. In exchange, the franchisee has to pay fees or royalties.
Many major fast food businesses in Australia operate on a franchise model. With more than half of Australia visiting a fast food outlet at least once a month, fast food franchises are a popular choice. If you're looking into purchasing one, you should note that the costs and application process varies depending on the franchise.
Fast food franchises in Australia include:
- Hungry Jack's
- Gloria Jean's
- Red Rooster
- Pizza Hut
- Mad Mex
How much does a fast food franchise cost in Australia?
As with any type of franchise business, the initial startup costs vary depending on the type of fast food franchise, the location and demographics of the area. This includes the size of the area and local competition. For instance, a Salsa's franchise may cost as little as $50,000 in startup franchise fees, while a Nando's franchise could reach up to $1 million in initial fees.
The following are some examples of capital investments for well-known fast food franchises in Australia:
- Gloria Jean's. Franchises typically cost between $350,000 and $450,000, with a franchise fee of $32,500.
- Nando's. Expect to pay between $950,000 and $1.2 million. The initial franchise fee will be approximately $48,500.
- Domino's. These popular pizza franchises require an initial capital investment of between $450,000 and $600,000, plus an initial franchise fee of $60,000.
- Subway. The initial capital investment is generally between $195,000 and $360,000, depending on its location. A one-off franchise fee of $16,500 will also apply.
- SumoSalad. SumoSalad franchises require between $300,000 and $380,000 in initial capital investment, plus a franchise fee of $45,000.
- Red Rooster. Red Rooster franchises tend to be between $370,000 and $900,000, plus a franchise fee of $50,000.
Are there any other costs I need to consider?
While operating a franchise can be similar to starting your own business, one of the main differences are the ongoing fees or royalties. Depending on the franchise, this can be a fixed fee and/or a percentage of your franchise's revenue.
Every business has hidden costs and expenses, and a franchise is no different. However, under the Franchising Code of Conduct, the franchisor is legally required to give you a breakdown of all the fees and other operating costs you will have to pay.
The following are examples of additional costs for popular fast food franchises in Australia:
- Bakers Delight. Bakers Delight requires an initial working capital of between $10,000 and $15,000, with little to no debt attached to fund your fit-out costs, marketing, advertising and administration.
- Gloria Jean's. You will need to pay 6% of your gross weekly sales to Gloria Jean's, as well as another 2% of your gross weekly sales to the advertising and marketing fund. In addition, you will need to fund your ongoing operational costs, including insurance and rent.
- Domino's. Domino's charges an ongoing franchise fee of 7% of weekly gross sales, plus an additional 6% of weekly gross sales as an advertising fee. In addition, expect to pay between $40,000 and $60,000 plus outgoings per year for rent.
- Subway. Expect to pay approximately 8% of your overall sales in royalties in addition to a 4.5% advertising fee.
- SumoSalad. SumoSalad requires 6% of gross sales as royalty fees, with an additional 3% of gross sales going towards advertising and marketing.
- Red Rooster. Red Rooster's royalty fee is generally 5% of your gross weekly sales. An additional 6% of gross weekly sales goes towards an advertising and marketing fund. In addition, Red Rooster requires a minimum of $30,000 in debt-free savings or accessible equity to cover operating costs.
Keep in mind that these won't be the only costs. You will have operational costs, including wages, rent and utilities to manage.
How profitable are fast food franchises?
When it comes to franchises, the franchisor may provide ongoing support and branding, but it's difficult to determine how profitable the franchise will be. There are a number of costs you'll have to factor in, including royalties and the cost of running a business. All this means that turning a profit may not be as easy as it seems.
What should I consider before buying a fast food franchise?
The Australian Competition and Consumer Commission advises that before you buy a franchise, you must do the due diligence. Don't get rushed into making a decision. Get professional advice first. This can be in the form of independent accounting, legal or business advice about the franchise.
You should also take your time with the disclosure document and make sure you understand it. Don't take the franchise salesperson's word for it. Any claims they make should be written down or included in the franchise agreement.
Finally, you should take the time to speak to current and former franchisees. This will give you a better understanding of what you're getting into, as well as any strengths and weaknesses of the franchise. Find out how long it took them to make a profit, how much work was required, and whether they recovered their initial investment. You should also use this as an opportunity to find out what kind of franchise you're working for. Find out what they're like and if they provide enough support and training.
What should I do to become a franchisee?
There are a number of steps you need to take to become a franchisee. These include:
- Find out as much as you can about the franchise. Do you meet their criteria, and does this sort of work suit you? Can you see yourself putting in the work required? You should choose a franchise that suits your skills.
- Contact the franchisor. There may be preliminary interviews you'll have to go through. Make sure you get as much detail about the business as possible from the franchisor. This includes information on your role, how much the royalties or fees are, minimum performance criteria, how much work is required and how much support you'll receive. Make sure you cover operational questions, including training for yourself and staff, and any marketing they provide. Also cover costs and expenses, income and supply. This should give you an idea of whether or not to proceed.
- Do due diligence. Speak to your accountant, advisors and lawyers with expertise in franchising.
- Once you decide to proceed, you'll have an application form to fill out. This will begin the formal process. Get the disclosure document, franchise agreement and other documents. Go through these, do the due diligence, ask questions and speak to other franchisees.
- Get your finances ready. If you're applying for finance, get the ball rolling. Contact the lender and begin the application process.
- Once you have finances confirmed and everything is in place, you can sign the franchise agreement.
What are the pros and cons of starting a franchise?
- You don't have to build the brand from scratch. You'll be relying on an existing brand name and won't have to spend years building your brand.
- Advertising. In the same vein, your business will receive more advertising than it ever will if you started it yourself.
- Training. The franchisor will train you, sometimes at the start and on an ongoing basis. This training can include not merely how to make the product, but also how to manage the business side of things.
- Gain an already established network. This includes a network of supplies, as well as fittings and equipment. As part of this network, you're likely to get better prices than you otherwise would.
- Support. There's an existing network of support you can rely on. Franchises often have a team of people who can advise and assist you.
- Cost. Every business comes with costs, but with franchises, you will owe a percentage of your sales to the franchisor. This can eat into your profit margins.
- Risk. While you'll be plugged into an existing brand ecosystem, there's no saying how it will go. You need to do your research thoroughly to ensure you're making the right decision.
- Restrictions. You will have to run the business as the franchisor says, and there may not be much room for deviation. You may find this difficult if you're used to running things your way.
- Demands on the franchisee. You may have to meet certain requirements, such as working in the franchise for a number of months. This will depend on the franchise, but some franchises may expect it of you.
- Stress and difficulties. You may have to keep long hours, manage staff and maintain the standards expected by the franchisor. This can cause stress and make it a difficult venture.
- Tons of paperwork. There will be paperwork from the lender and the franchisor.
How can I finance my fast food franchise loan?
There are a number of ways you can finance your fast food franchise through a business loan. These include:
- Secured business loans. With an existing residential property as security, some lenders could lend even up to 100% of the value of the property. With a residential property as security, standard loan terms of 25 to 30 years usually apply. You could also secure the loan against commercial property, but the LVR is usually lower, ranging up to 70%.
- Unsecured business loan. These loans have smaller borrowing amounts and typically require borrowers to have good credit. Your loan term could be limited to the length of the franchise agreement, ranging from 5 to 10 years.
- Finance from franchisor. Some franchisors offer their own finance agreements to potential franchisees. Not all franchisors offer this, so be sure to check if they do. This could be an option if you have trouble accessing finance from traditional lenders. You should compare this option with a business loan to ensure you're getting a good deal.
- Business line of credit. This allows you to borrow funds on a revolving basis. It can be either secured or unsecured. You'll have access to funds when you need it and you only have to pay interest on what you borrow. Interest rates can be higher than other options.
- Low-doc business loan. If you can't provide the usual proof of income, this could be an option. It's more costly than a business loan and borrowing amounts may be limited.
What should I consider when comparing my financing options?
Here's what you need to keep in mind when you're comparing loans and lenders:
- Interest, fees and comparison rates. Comparing interest rates is a good way to check if the loan is competitive. But as important as it is to compare interest rates, you should also keep an eye on fees and the comparison rate. The latter takes into account interest and the fees you will be charged, and will give you an indication of the true cost of the loan. Some loans may come with low interest but high fees, so this will drive up the cost of your loan. Keeping an eye out on fees, interest and the comparison rate can help you find a loan that's low cost.
- Loan term. Your loan term is how long you have to repay the loan. The length of the term will affect how high your repayments are. That is, with a short term, you can expect higher monthly repayments. But with longer terms, you pay more in interest and fees. You can use a business loan calculator to get an idea of what your repayments will be like with different loan terms.
- Loan amount. Lenders have set minimum and maximum lending amounts. Make sure the amount you need is on offer from the lender.
- Loan features. If there are specific loan features you would like to have, make sure to check which loans offer these features. This can include early repayments, early exit without penalty and redraw facilities.
- Turnaround time. Check how long the lender takes to approve the loan and transfer the funds to you. If you need your funds within a certain time, make sure the lender is able to accommodate this.
- Eligibility. This may seem obvious, but you should only apply to a lender if you meet all their criteria. This includes your finances and credit history.
How do I get approved for finance?
When applying for finance, you'll have to keep 2 things in mind. You'll have to convince the lender that the franchise and location are a good choice. You will also have to convince them that you have the necessary business skills and experience to turn a profit. You essentially have to think of it as a combination of a job interview and finance application.
You should consider the following before applying for a loan:
- Credit. The lender will run a credit check to determine your credit history and current credit position.
- Financial position. Be prepared with your personal tax returns for the past 2 years if you are an employee, and your business financial records if you run your own business.
- Relevant business experience. Update your resume to highlight your relevant business experience, particularly in the fast food or restaurant industry, or in managing retail or food service businesses. Provide written references from employers or employees.
- Loan security. Substantial savings with no attached debt or sufficient equity in a residential property will put you in an excellent position to be approved for finance.
- Business plan. Have your accountant prepare a business plan including a profit forecast for your proposed franchise business.
- Financials on the existing franchise. If you wish to purchase an existing franchise, provide fully audited financial documents for the past 2 years, including profit and loss statements.
- Fast food franchises don't guarantee sure-fire success.
- Like any business, a fast food franchise will depend on the business skills of its owner and manager to succeed.
- Banks and other lenders are willing to provide credit for the purchase of a fast food franchise. Without sufficient residential property as equity, they may be unwilling to provide more than 50 to 70% of the value of the business. The loan can be secured against the franchise.
How can I apply for a fast food franchise loan?
🤔 Work out what type of loan you can apply for, how much you need to borrow and what you can afford.
🔎 Start comparing lenders and loan products. Don't forget to compare interest rates, fees and eligibility criteria. You can use the comparison table on this page.
✅ Select a lender. Click "Go to site" to be directed to the lender's page, or "More info" if you want to read about the lender.
🖨️ Organise and prepare the required documentation. This will make the application process easier.
📱 Apply. Most lenders have their applications online.
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