By Ali Kraus, Chief Marketing Officer, Benetrends Financial
A lot of thought goes into buying a franchise, especially when you are a first-time owner. You are choosing the right brand, the right territory, and the right moment to make the leap. The funding side of that decision often receives the least amount of forethought, and where things tend to go wrong. Not because first-time buyers aren’t financially savvy, but because franchise financing has unique nuances, and a clear roadmap isn’t always provided upfront, and they weren’t given a roadmap before they started. Here are six of the most common funding mistakes we see, and what new business owners should do differently.
1. Not Reading the FDD Closely Enough
The Franchise Disclosure Document (FDD) is not optional reading. It contains everything you need to understand what franchise ownership will actually cost: initial fees, territory costs, buildout requirements, grand opening marketing obligations, ongoing royalties, and required training expenses. Too many buyers skim it, or rely on a summary, and build a funding plan around incomplete numbers.
Read it carefully before you talk to a single lender. It’s also a good idea to have a franchise attorney review the FDD and answer your questions before moving forward. Your financing strategy should reflect what ownership actually costs, not what you hope it costs.
2. Underestimating How Much You Really Need
Most first-time owners think long and hard about the initial investment figure. Fewer consider what it takes to keep the business running in the first several months, before revenue gains any real momentum. This is the period when buildouts run over schedule, hiring takes longer than expected, and customers don’t always arrive on your timeline.
A smart approach: calculate what you think you need, then add a meaningful buffer on top of it. Unexpected costs are not a possibility; they are a certainty. The owners who come out of year one in the best shape almost always planned for the realistic version of startup, not the optimistic one.
3. Underborrowing to Feel Responsible
There is a well-intentioned instinct to borrow as little as possible. It feels disciplined. In practice, it can be one of the most expensive decisions you make.
Coming in underfunded means the business has no margin for error. Every slow week or unanticipated cost becomes a crisis rather than a manageable bump. The right amount to borrow is the amount that gives the business room to breathe, not just the minimum needed to open the doors.
4. Not Knowing Where Your Credit Score Stands
If an SBA loan is part of your funding plan, your credit history matters more than you might expect. Lenders look at your score, your debt-to-income ratio, and your overall financial picture. A score that hasn’t been actively managed can limit your access to the best loan terms or even to the loan itself.
Pull your credit report before you get serious about a brand. If there are issues, address them early. Trying to clean things up after you’ve already committed to a concept and want to move fast is a much harder position to work from.
5. Not Exploring Alternative Funding Structures
Many first-time buyers assume the choice is between a bank loan and personal cash. The options are actually much broader. For many buyers, the most effective approach combines sources rather than an either-or scenario.
One structure worth learning about is Rollover for Business Startups (ROBS), which allows you to invest existing retirement savings into a franchise without triggering early withdrawal penalties or taking on additional debt. Benetrends Financial has helped thousands of entrepreneurs use this approach, either on its own or paired with an SBA loan, to fund ownership without carrying more personal debt than necessary. It isn’t right for every situation, but it’s worth understanding before you rule it out.
6. Skipping Due Diligence on the Business Itself
Funding decisions do not happen in a vacuum. Before you commit to any financing, make sure you have done extensive research on the franchise concept. Talk to existing franchisees, outside of the ones the brand refers you to. Understand what support looks like in practice, what the day-to-day actually involves, and how similar-market locations have performed.
A well-structured funding plan won’t make the wrong business work. The research you do before signing protects your investment as much as any financial strategy does.
Getting funding right from the jump doesn’t mean you are being overly cautious. It means you are prepared and ready to tackle this adventure. The entrepreneurs who navigate this process most successfully are the ones who understand their options, know their real numbers, and ask the right questions before they commit.
Ali Kraus is the Chief Marketing Officer at Benetrends Financial, which has helped more than 30,000 entrepreneurs fund their businesses since 1983. Learn more at benetrends.com.