If you have been thinking about buying a franchise lately, you will want to sit down with a cuppa and read this carefully.
The rules around franchising in Australia have changed recently, and those changes could affect how lenders view franchise loans and whether you get approved.
Let’s go through what the updated franchise code involves, what to watch out for, and how to approach financing a franchise now.
What has changed and when
The new Franchising Code of Conduct came into effect from 1 April 2025 for new franchise agreements.
For any agreement entered into or renewed from 1 April 2025 onwards, it needs to meet the requirements of the new code.
For some of the new rules, the transition ends on 1 November 2025, when full compliance becomes mandatory.
Key updates you should know about include
- Franchisors must now fully disclose any significant capital expenditure a new franchisee might need to pay for upfront. This includes things such as equipment fit-outs or leasehold improvements.
- If franchisees are required to contribute to pooled funds such as marketing or other “specific purpose funds,” these must now be clearly disclosed. They must also include how the funds are managed and spent.
- Franchise agreements must give franchisees a reasonable opportunity to make a return on their investment. This obligation expands the protection that previously applied mainly to certain dealership-type franchises.
- Post-termination “restraint of trade” or non-compete clauses that kick in after a franchise ends are restricted. Franchisors can no longer include certain post-term non-compete terms where the franchisee seeks renewal or extension.
- Civil penalty provisions are stronger. Breaches of the code can attract serious penalties, which raises the bar for disclosure and fair conduct from franchisors.
These changes are designed to improve transparency fairness and give potential franchisees greater clarity about what they are investing in.
Why the changes matter for lending and franchise finance
From a finance perspective, the updated code improves the quality of information available to both lenders and borrowers.
When a franchisor provides clear disclosure of capital requirements, ongoing fees, pooled funds, and realistic return-on-investment forecasts, lenders can assess risk more confidently. That makes it easier for a well-prepared applicant to secure financing with fair terms.
On the flip side, if the documentation from the franchisor is vague or incomplete, lenders may be more cautious.
They might require more conservative assumptions about cash flow or ask for larger deposits to offset perceived risk.
In short, the new code raises the standard of what lenders expect before approving franchise loans. That works in favour of careful buyers but punishes those who try to cut corners.
What you need to check carefully
Under the new code, there are now a few key steps before you sign on or apply for financing.
Request updated disclosure documents
Make sure the franchisor gives you the disclosure that meets the new code. This includes full details of all required capital expenditure, pooled funds, expected ongoing fees, and a realistic profit forecast.
Speak to existing franchisees
Ask to talk to current or former franchisees about their real-life experience.
Disclosure documents and forecasts are helpful, but real-world feedback gives context about actual revenue volatility, what expenses really look like, and how the franchise operates day to day.
Do a conservative cash flow and loan stress test
Lenders will favour conservative projections, so build a budget that tests low sales scenarios and accounts for seasonal dips, expenses and possible delays before profit kicks in.
Plan for working capital and buffer expenses
Make sure you have extra funds beyond the upfront franchise cost to cover stock lease payments, wages, and living costs until the business becomes stable.
Choose the right lender or broker
Some lenders will be more comfortable with franchise finance than others. Using a broker who understands the new code and the financing appetite for franchises can help you find better loan options.
What this means for buyers in 2025 and beyond
If you are buying a franchise or renewing one after now, it’s more important than ever to get your homework done.
Transparent disclosure, realistic forecasts, and a solid financial buffer will improve your odds when seeking finance.
For lenders, the changes create a stronger foundation for assessing franchise risk, and this could lead to more streamlined approvals for well-prepared applicants.
For franchisees, it means greater fairness, better information, and a stronger chance that the promises made at the start will align more closely with reality as business progresses.
If you are thinking about buying a franchise, we can help you review the disclosure documents and build a finance strategy that fits market expectations and lender standards.
This blog is intended for general informational purposes only. For personalised advice tailored to your unique financial situation, please contact NMC Finance.
