Franchise resale or independent business: which is better for a first-time buyer?

What is different about buying a franchise resale?

When you buy an independent business, you deal with the seller. When you buy a franchise resale, you also deal with the franchisor. That changes the process in four ways.

1. Approval. The franchisor must approve you as the new owner. Expect an application, a review of your finances and background, and required training before closing.
2. Transfer fee. Franchise agreements commonly charge a fee when the business changes hands. The amount is set in the agreement. The Franchise Disclosure Document (FDD) describes it.
3. The agreement you get. Some franchisors let you take over the seller's agreement for its remaining term. Others require you to sign their current form, which may carry different fees, a new term or remodel requirements. Find out which before you price the deal.
4. Rights of first refusal. Franchise agreements often let the franchisor buy the unit on the same terms you offered. Read the transfer section of the agreement early.

How does SBA financing work for a franchise?

The SBA rules are the same as for any first acquisition, with one extra gate. As of October 2026, under SBA SOP 50 10 8.1:

• The brand must be listed on the current SBA Franchise Directory. If it is not, an SBA lender cannot finance it.
• Your cash injection must be at least 10% of total project costs, and it cannot be reduced for a first purchase. Transfer fees and training costs are part of project costs.
• The business's historical cash flow must cover the new debt 1.25 times. Royalties and ad-fund fees are expenses. The lender measures cash flow after them.
• An independent valuation is required, and total debt cannot exceed the appraised value.
• Since March 1, 2026, owners must be U.S. citizens or U.S. nationals with a U.S. principal residence.

A franchise brand does not lower the bar. It can make a lender more comfortable that the system works. It cannot fix a unit that does not earn enough.

What does an independent business give you?

• Control. You set prices, pick suppliers, change the menu of services and decide hours.
• No royalties. Every dollar of gross profit stays in the business.
• Freedom to combine. You can merge it with other businesses, buy competitors and sell it to whoever you choose.
• More risk on systems. There is no operations manual, no training program and no brand marketing. If the seller ran the business from memory, you inherit that problem.

Worked example: why royalties belong in the price

The franchise fees and earnings below are assumptions. Read your FDD for real figures. The multiple is BizBuySell's all-sector average of 2.57x seller's discretionary earnings (SDE) for 2021 to Q1 2026.

1. A franchise unit earns $240,000 before royalties and ad-fund fees. Assume those fees total $40,000 a year. Its SDE is $200,000.
2. Priced on SDE after fees: 2.57 × $200,000 = $514,000. A seller who quotes 2.57 × $240,000 = $616,800 is pricing earnings you will never keep.
3. Total project costs with an assumed $56,000 for working capital, transfer fee and closing costs: $570,000. Your 10% injection: $57,000. Loan: $513,000.
4. Payments at the September 2026 maximum variable rate of 10% (prime of 7% plus 3%; check current prime) over 10 years: about $81,352 a year.
5. Cash for debt after an assumed $80,000 salary for you: $120,000. Coverage: 1.48x. That passes.
6. Now assume the franchisor requires you to sign its current agreement, adding $10,000 a year in fees. Cash for debt: $110,000. Coverage: 1.35x. Still passes, with less cushion.

The lesson: get the exact fee schedule you will sign before you agree on a price.

Questions to ask on each path

For a franchise resale:

• Is the brand on the current SBA Franchise Directory?
• Will I assume the existing agreement or sign the current one? What changes?
• What is the transfer fee, and what training is required before closing?
• How many years are left on the term, and what does renewal require?
• Does the franchisor have a right of first refusal?
• Will the franchisor let me talk to other owners in the system?

For an independent business:

• Does the business run without the owner for two weeks?
• Are processes written down anywhere?
• Do customers buy from the company or from the owner personally?

If you plan to own more than one business

Franchise agreements often restrict competing businesses and require the franchisor's consent for changes in ownership. That can make it harder to put a unit inside a holding company with other businesses or to sell part of your company to investors. Owning several units of one brand is a common alternative. Read the agreement with a franchise lawyer before you plan around it.

Where these numbers come from: SBA rules, including the Franchise Directory requirement, are from SBA SOP 50 10 8.1 as summarized by Beancount and Cantrell Firm. The average multiple is BizBuySell data via Beancount's SDE guide. The rate cap is from NerdWallet (September 2026). Royalty, fee and earnings figures in the example are assumptions, not market data. SOP 50 10 8.1 applies to loans that receive an SBA loan number on or after October 1, 2026 (SBA Information Notice 5000-880695).

Related questions

Is a franchise resale safer than buying a new franchise?

A resale has a track record you can verify, so a lender can size the loan on real cash flow. A new unit has none. You pay for that history in the price.

Who pays the franchise transfer fee?

It is negotiable between buyer and seller. Settle it in the letter of intent. See what to include in an LOI.

Can the franchisor block my purchase?

Yes. Franchisor approval is a condition of most transfers. Make it a closing condition in your purchase agreement so you are not bound if approval is denied.

Do I need industry experience to buy a franchise?

Less than for an independent business, because the franchisor trains you. You still need to manage people and money. See whether you need industry experience.

What comes next

Whichever path you choose, test why the owner is selling: why would anyone sell a profitable business.

Related articles

• Should I buy a business or start one?
• Why would anyone sell a profitable business?
• Is the baby boomer wave of business sales real?
• How do you build a holding company for acquisitions?

Meraki Dealmakers is a service of Meraki Partners, LLC, an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm. This article is general information, not legal, tax or investment advice.