Franchising is one of the fastest ways to break into the restaurant industry, but what if you don’t have the capital to get started?
You’re not alone. In fact, 66% of restaurant operators say they’ll need additional funding in 2025 to expand or improve operations, making cost-effective growth models like franchising even more appealing.
The right franchise opportunity, paired with the right strategy, can open doors even when funding is tight.
If you’re looking for creative ways to cover the franchise agreement and related fees, this article breaks down seven actionable ways to start a restaurant franchise with little to no money.
The cost to open a franchise can vary significantly, ranging from under $10,000 to over $5 million, depending on the brand, location, and business model.
According to Michael H. Seid, founder of Michael H. Seid & Associates and a leading franchising expert, the average investment for a single-unit franchise usually ranges between $100,000 and $300,000.
What is a Franchise?
According to the International Franchise Association, franchising is a business distribution method that utilizes a franchise system.
It involves two key players: the franchisor, responsible for establishing the brand’s trademark, business system, and trade name, and the franchisee, who, in exchange for the right to operate under the franchisor’s name and system, pays an initial franchise fee for new franchise locations.
Although the technical contract between these parties is referred to as a “franchise,” the term “franchise” is more commonly used to describe the business operated by the franchisee.
Creating and disseminating a brand and franchise system is typically referred to as franchising.
What is the Franchise Disclosure Document (FDD)?
To start a franchise, the Franchise Disclosure Document (FDD) is a legally required document that individuals looking to purchase a U.S. franchise must receive during the preliminary research and evaluation stage. This document provides crucial information vital for prospective franchisees considering a substantial financial commitment.
The Federal Trade Commission (FTC) plays a crucial role in regulating and overseeing the franchising industry in the United States. When it comes to starting a franchise, the FTC enforces specific regulations and guidelines related to franchise operations to protect the prospective franchisee and ensure transparency in franchise agreements.
How Much Money Do You Need to Start a Franchise Business?
The cost of starting a franchise business can vary significantly depending on various factors, including:
- The franchise brand
- The franchise location
- The size of the restaurant
- Market conditions
Generally, the initial investment for a franchise restaurant ranges from tens of thousands to several million dollars.
For example, Chick-fil-A requires a relatively low upfront franchise fee of $10,000, but it must come from non-gifted, non-borrowed funds.
In contrast, McDonald’s typically expects a minimum of $500,000 in non-borrowed personal resources to even be considered.
Subway falls somewhere in between, with an estimated initial investment ranging from $199,135 to $536,745, depending on factors such as location, store size, and build-out requirements.
KFC requires a franchise fee of $45,000, with a total initial investment ranging from $1.44 million to $2.77 million.
You’ll also need to factor in ongoing royalty fees, which vary between franchise brands. These fees are typically a percentage of your sales, ranging from 5% to 50%, depending on the franchise brand.
Most franchisees must also allocate 1-4% of their revenue to annual marketing fees to support local promotion and growth.
Finally, be prepared for other expenses, such as restaurant insurance, equipment, inventory, obtaining business licenses, and hiring staff.
Depending on the restaurant type, here are the average startup costs for a franchise:
- Fast food franchises typically cost between $250,000 and over $1 million to open.
- Full-service restaurants usually require an investment of $750,000 to over $3 million.
To sum up, it’s crucial to carefully review the Franchise Disclosure Document (FDD) to fully understand the estimated initial investment, ongoing fees, and financial commitments.
Some franchisors may offer support with setup costs, while others leave all expenses to the franchisee. Each franchise is structured differently, so thorough research is essential to finding the right fit for your goals and budget.
How to Start a Franchise with No Money?
As a business owner, you may wonder how to join the franchise industry. How do you open a franchise with no money?
Below, I’ve outlined seven practical ways that can help you get started.
1. Choose a Supportive Franchisor with Flexible Terms
Selecting a supportive franchisor is crucial to achieving franchise success. Their training, guidance, and ongoing support can significantly impact your growth and your restaurant’s profitability, especially if you’re new to the industry.
Here’s why it matters:
- Training & mentorship: Supportive franchisors equip you with the knowledge to run the business effectively.
- Strategic location selection: They help you pick high-traffic sites to boost your restaurant revenue.
- Flexible fees: Some offer adaptable fee structures, making the financial burden easier to manage when starting.
- Ongoing support: From marketing to operations, the right franchisor stays involved post-launch.
- Not all franchises are alike: Not all franchisors offer the same level of support, so be sure to do your research before committing.
2. Leverage Franchise-Specific Financing Options
If you don’t have the upfront capital, consider exploring financing programs specifically designed for franchisees. Many franchisors offer low-interest loans, deferred franchise fees, or flexible payment plans to help new owners get started.
You can also take advantage of SBA loans and microloans, which are popular options for small business owners entering the franchise industry. These programs are often more accessible if you’re partnering with a recognized, established brand.
3. Apply for Traditional Bank Loans
Applying for a traditional bank loan is a standard restaurant financing option and a viable way to fund your franchise, provided you meet the lender’s requirements.
You’ll need a solid business plan that outlines your franchise concept, includes thorough market research, and provides detailed financial projections to demonstrate the viability of your venture.
Banks will evaluate your creditworthiness, so maintaining a good credit score is essential.
Be prepared to provide collateral and a personal guarantee, as many banks require both to secure the loan. Once approved, a restaurant loan can cover franchise fees, startup costs, and initial working capital.
4. Use Personal Savings or Retirement Funds
If you have personal savings, you can use them to cover initial franchise fees or other startup costs. Some franchisees also tap into home equity loans to access additional capital.
Another option is tapping into your retirement funds, such as a 401(k) or IRA. While this can be risky due to potential taxes and penalties, there’s a structured way to do it legally through a Rollover for Business Startups (ROBS) plan.
To be eligible for a ROBS, you must have one of the following retirement accounts:
- a 401(k) – more information on the IRS
- a 403(b) – more information on the IRS
- an IRA – more information on the IRS
I recommend speaking with a qualified financial advisor first so you understand all the legal, tax, and financial implications.
5. Find Private Investors
A great alternative is to seek out restaurant investors, such as private individuals, business angels, or venture capital firms, who are open to funding new restaurant ventures in exchange for equity. These investors often come in at a pre-agreed valuation and can bring both capital and expertise.
A business angel could even be someone you know personally, such as a friend or family member, who is willing to support your franchise journey.
6. Contact Local Restaurant Associations
Your local restaurant association can be a valuable resource when starting a franchise. Many offer access to grants, funding programs, or business development resources tailored to new restaurant owners.
In some areas, state or local governments also provide subsidies or incentives to support small businesses and boost regional economic growth.
- The National Restaurant Association provides valuable resources and guidance to entrepreneurs interested in starting a restaurant franchise. With its extensive knowledge and expertise, the association offers useful insights into franchising best practices, regulatory compliance, and industry trends, making it a trusted resource for aspiring franchisees in the restaurant sector.
- State Restaurant Associations may offer specialized programs or advantages to assist new restaurant proprietors and individuals aspiring to become franchisors.
7. Co-Franchise with Another Restaurant Owner
If you’re short on capital but eager to get started, consider partnering with an experienced restaurant owner to co-own a franchise. This approach allows you to split startup costs, franchise fees, and operational responsibilities, making the investment more manageable.
Co-franchising reduces your financial risk and provides an opportunity to learn from someone familiar with the franchise system, helping you build knowledge and confidence as you grow your business together.
Franchise owners earn an average of $102,910 annually. With over two years of experience, that rises to $115,688. Owners with 2–4 units earn around $142,638, and those with five or more units earn about $214,418.
QSR franchises, such as McDonald’s and Subway, typically earn an average of $82,000 per year.
In summary, franchisees typically earn a profit of 4-12% of their gross revenue on average.
How to Open a Franchise with No Money: What You Need to Get Started
Below, I’ll walk you through what you need to get started with little or no capital. These essentials can help you launch a restaurant business with a reputable franchise company, even on a tight budget.
1. Conduct Research on Franchise Opportunities
Start by exploring low-cost franchise opportunities or those that offer flexible financing options. Some franchise companies provide reduced initial fees, deferred payments, or creative funding solutions to help new owners launch with minimal capital.
Focus on brands known for strong franchisee support, transparent financials, and a proven track record of success.
Take time to review Franchise Disclosure Documents (FDDs), speak with current franchisees, and evaluate which business models best align with your skills, goals, and budget.
2. Write a Business Plan
A well-crafted business plan is crucial when launching a franchise with limited financial resources. It shows potential investors or lenders that you have a clear vision and a realistic strategy for success. Your plan should outline your restaurant goals, target market, startup costs, revenue projections, and operational strategy.
Whether you’re applying for a loan or pitching to restaurant investors, a strong business plan demonstrates your commitment to success. It reduces perceived risk, making it easier to secure the funding you need.
Learn more about how to write a restaurant business plan.
3. Make a Pitch to Potential Investors or the Franchisor
Preparing a compelling pitch can help attract restaurant investors or even convince the franchise company to offer flexible terms. While you won’t have much control over restaurant branding, since you’re joining an established franchise, you can use your business plan to highlight the franchise’s market potential, your commitment, and the expected return on investment.
Remember, in some cases, franchisors may be willing to finance part of your startup costs if they believe in your potential to succeed.
4. Find Capital and Financing Options
Explore funding sources such as SBA loans, microloans, personal savings, or retirement funds through a ROBS. Some franchise companies also offer internal financing or deferred fees.
Above, I outlined seven ways to start a franchise with minimal to no initial investment. Utilize these strategies to determine the optimal funding combination for your specific situation.
5. Obtain Licenses and Permits
Make sure you understand and obtain all the necessary licenses and permits required to operate your specific franchise.
Regulations vary by state and locality. For example, some towns in the United States may restrict the establishment of new fast-food restaurants.
Proper legal preparation is essential for building a successful franchise. It helps protect you from potential legal issues in the future and secures your investment, giving you greater confidence as you begin your franchising journey.
6. Hire Employees
When launching a franchise, hiring the right Front of House (FOH) and Back of House (BOH) staff, along with capable managers, is essential for smooth business operations.
FOH staff, such as servers and hosts, play a key role in creating a positive customer experience. Meanwhile, BOH staff, including chefs and kitchen personnel, are responsible for maintaining food quality and preparation standards.
Many franchisors offer support with recruitment and training, helping franchisees build a skilled, well-coordinated team. This ensures the franchise meets brand standards and consistently delivers a high-quality customer experience.
7. Use Restaurant Technology
Modern restaurant franchises depend on technology to streamline operations and enhance the customer experience.
Begin by implementing the tools required by your franchisor, such as:
- POS systems
- Inventory management software
- Online ordering system
A reliable POS system streamlines transactions and tracks sales in real time. Inventory tools help control stock and reduce food waste. An online ordering system expands your reach to more potential customers.
You can also enhance your service by offering a QR code menu, enabling guests to view and order directly from their smartphones. This not only increases convenience and reduces wait times but also ensures a consistent, tech-enabled experience across all franchise locations.
8. Create a Marketing Plan
Develop a restaurant marketing plan that focuses on low-cost or free channels, such as social media, local advertising, and community outreach. These methods are especially valuable when starting with limited capital and help build brand visibility in your area.
Leverage digital marketing tools like Google Business Profile for restaurants, email marketing, and geotargeted ads to reach your ideal audience without significant upfront costs. Many franchisors also provide marketing materials and brand guidelines, so be sure to utilize these resources to maintain brand consistency and enhance your local efforts.
Consider launching a restaurant loyalty program to encourage repeat visits. These programs reward customers with perks like discounts or free items while providing valuable insights into their preferences, which can be used to create more effective promotions.
You can also partner with nearby businesses or participate in local events to grow awareness and connect with your community. Building local relationships attracts new customers, creates goodwill, and fosters valuable word-of-mouth promotion, essential for early success in franchising.
9. Prepare a Launch Plan
A well-organized launch is key to making a strong first impression and gaining early traction.
Plan a cost-effective grand opening event that generates excitement in your community and attracts your first wave of customers. Even with a limited restaurant marketing budget, you can make a significant impact by being creative and strategic.
Focus on word-of-mouth by inviting friends, family, and local influencers. Partner with nearby businesses or community groups to co-promote the event and expand your reach.
Use your franchisor’s marketing materials to stay on-brand and offer opening-day discounts, tastings, or giveaways to attract customers and build buzz.
Want more inspiration? Check out this article on the best restaurant grand opening ideas to spark fresh ideas for your launch.
Key Takeaways
- Franchise Startup Costs: Opening a franchise can cost from $10,000 to over $5 million. Most single-unit franchises require an initial investment of between $100,000 and $300,000, depending on the brand, location, and business model.
- Franchise Cost By Restaurant Type: On average, fast food franchises cost between $250,000 and $1 million to open. Full-service restaurants typically require an investment of $750,000 to over $3 million.
- Don’t Overlook Ongoing Fees: Franchisees often pay 5% to 50% of revenue in royalty fees, plus an additional 1% to 4% for required marketing fees. These factors should be considered in your overall restaurant financing strategy.
- Choose a Supportive Franchisor: Some franchisors offer restaurant training, reduced fees, or flexible payment terms to support new franchisees. Selecting a supportive partner is key when capital is limited.
- Funding Options Go Beyond Banks: If traditional loans aren’t available, consider SBA loans, grants, retirement funds, or private investors to secure financing.
- Planning Is Non-Negotiable: Create a comprehensive restaurant business plan that includes thorough market research, detailed financial projections, and a clear growth strategy to attract lenders, franchisors, and investors.
- Marketing Doesn’t Have To Be Expensive: Use social media, word of mouth, and restaurant loyalty programs to drive traffic without a large restaurant marketing budget.
- Always Review the FDD: The Franchise Disclosure Document outlines all costs, obligations, and support provided. Reading it thoroughly helps avoid surprises and set realistic restaurant goals.
