Buying an Existing Franchise: Approval and Fees

A franchise resale is the purchase of an existing franchised outlet from its current owner, and the franchisor usually has to approve you and the sale. Before you sign, read the Franchise Disclosure Document (FDD), the franchise agreement and the operations manual, and ask what the franchisor will charge, require and change at transfer, including territory, training and the insurance it expects. This guide is for buyers weighing a franchised business, including search fund and Small Business Administration (SBA) buyers. It is general information, and franchise counsel should review your documents.

The short answer

The franchisor usually controls the transfer: it approves the buyer, may have a right of first refusal, and often charges a fee and requires training. Some state laws limit what it can require.
Disclosure document: in a resale you do not automatically get one. The franchisor may owe you one if it becomes significantly involved with you, for example by sharing financial performance figures. Ask franchise counsel.
The FDD is not the outlet: it describes the franchisor's system, not the outlet you are buying, so the outlet's own financials and its territory still need checking.
The agreement you sign: many franchisors ask the buyer to sign the current form of agreement, sometimes for only the seller's remaining term. Work out whether that term lets you earn back the price.
Insurance: requirements live in the franchise agreement and manual. Read the coverage lines, limits, additional insured terms and proof deadlines before you price your insurance.

What does a franchisor control when an outlet is resold?

In most franchise systems the franchisor has a say in who buys an outlet. The details are in the franchise agreement, and they differ by brand. A 2014 American Bar Association paper by franchise lawyers lists the conditions below as common. Practice changes, so treat the list as questions for your documents, not as what any franchisor requires.

Common franchisor conditions for approving a transfer
Condition	What to confirm	Why it matters to your deal
Buyer qualifications	The franchisor's current standards for new owners and how long review takes	A late or failed approval can sink a closing date or a lender timeline
Transfer fee	Amount, how it is set and who pays. Practitioners describe four approaches: reimbursing the franchisor's costs, a fee set in the operations manual that can change, a percentage of the sale price, or a new initial franchise fee. It is often waived for transfers to a family trust.	It can be a real cost on top of the price. There is no standard amount, so read the FDD and the agreement
Right of first refusal	Whether the franchisor can buy the outlet on the terms you offered before you can	It can end a deal after you have spent on diligence
Training	Who must attend, how long, where and at whose cost	Training can delay when you can run the outlet
Amounts owed and releases	Whether the seller must pay the franchisor in full and sign a release of claims	Unpaid royalties or fees can delay consent
Then-current agreement	Whether you sign the seller's agreement or the franchisor's current form, and for what term	The remaining term and fee schedule set what you can earn back
Lease approval	Whether the landlord must approve an assignment or a new lease	The franchisor may make landlord approval a condition
Owner guaranty	Whether you must sign a personal guaranty of the outlet's obligations to the franchisor	That exposure is personal, and business insurance does not pay it

A franchisor's right of first refusal is a contract right in the franchise agreement, separate from any investor or partner rights in your own deal.

Do you get a Franchise Disclosure Document in a resale?

Sometimes, but not automatically. The Federal Trade Commission (FTC) Franchise Rule says a franchisor must give a prospective buyer its disclosure document (the FDD) at least 14 calendar days before the buyer signs a binding agreement or pays the franchisor anything in connection with the sale.

A resale from an existing franchisee often falls outside that rule. The rule does not treat a transfer as a franchise sale unless the franchisor has been significantly involved with the buyer, and approving or rejecting a transfer is not, by itself, significant involvement. An existing franchisee who sells only their own outlet, and does not otherwise sell franchises for the franchisor, is generally not a franchise seller under the rule. FTC staff said the same about a buyer who purchases directly from the franchisee without significant contact with the franchisor. That is staff guidance in a 2008 compliance guide, not a binding rule, so the rule text and franchise counsel control.

FTC staff say that changes if the franchisor does more, for example by giving you financial performance figures. In that case, they say, the franchisor must give you the FDD. Whether a franchisor is significantly involved is a question for franchise counsel. Lawyers also debate whether requiring you to sign the franchisor's current agreement counts, and that point is unsettled. Some state franchise laws are stricter than the federal rule, and the 2014 survey of state exemptions may be out of date, so ask counsel for the current rules in the franchise's state and yours.

Even where an FDD is not required, ask franchise counsel how to obtain the current one. It is the most complete description of the system you are joining.

Which parts of the disclosure document should you read first?

The FDD has 23 numbered Items in a fixed order. These are the ones most useful when you buy an existing outlet.

FDD Items that matter for a resale
Item	What it tells you	What it does not tell you
5 and 6	Initial fees, and other fees including transfer and renewal fees	The amount a transfer will cost for your outlet may sit in the agreement or manual
7	Estimated initial investment for a new outlet	What the outlet you are buying is worth
8	Restrictions on where you may buy goods, services and supplies	Whether those suppliers fit the outlet's margins
9	A table of your obligations and where each sits in the agreement, including a row for insurance	The coverage lines and limits. Those are in the agreement and manual
11	The franchisor's assistance, advertising, computer systems and training	Whether the support is good in practice
12	Territory	Whether the territory you inherit matches what the seller described
17	Renewal, termination, transfer and dispute terms, including any right of first refusal	How the franchisor will treat your particular transfer
20	Outlet counts and transfers by state for the last three fiscal years	Why outlets changed hands
21	The franchisor's audited financial statements	The outlet's own results

The last column matters most. The FDD describes the franchisor's offering, not the outlet you are buying. You still need the seller's outlet-level financial statements and a way to test them. For that work see the due diligence checklist for buying a small business and what a quality of earnings report is.

What changes when the outlet changes hands?

Several things can change even though the customers and the address stay the same.

Your agreement. If you sign the current form, the term is usually only the time left on the seller's term and fees follow the current schedule (see FDD Item 17).
Your suppliers and fees. You inherit the franchisor's supplier restrictions and current fee schedule.
Your territory. Ask whether the outlet has a protected or exclusive territory, how it is defined, whether it carries over or is redrawn under the franchisor's current agreement, and whether the franchisor or other channels (online sales, delivery, other brands) can serve customers inside it. Get the answer in writing.
Your training and support. Ask who must complete training, when, and at whose cost, and what ongoing support the current agreement promises.
Your lease. The landlord usually must approve an assignment or sign a new lease. See lease insurance requirements for new owners.
State law. Some states limit what a franchisor can require. Iowa, for example, lets a franchisor require a reasonable training program and a transfer fee that reimburses its reasonable and actual expenses directly attributable to the transfer, but bars it from requiring a new or different franchise agreement as a condition of transfer. Other states differ, and a given law may not cover your deal.

A hypothetical example. A buyer agrees to pay $400,000 for an outlet whose seller has four years left on the franchise agreement. The franchisor requires the buyer to sign its current agreement for the remaining four years only. If the outlet produces about $120,000 a year of owner earnings before debt payments and taxes, it takes a little over three years to earn back the price, leaving under a year before renewal, when the agreement's renewal terms apply. Debt payments and the buyer's own pay come out of that figure first, so the real payback can be longer. With ten years remaining, the same price looks very different. Before signing, the buyer should get the term, renewal conditions and fees from the franchisor in writing and ask franchise counsel to review them.

Can you use an SBA loan to buy a franchise resale?

It can be, but the brand has to qualify. SBA's rulebook, Standard Operating Procedure (SOP) 50 10 8.1 (effective October 1, 2026), says that when an arrangement meets the FTC definition of a franchise, the lender checks SBA's Franchise Directory, collects the executed franchise agreement and other documents the franchisor requires the franchisee to sign, and may review the FDD. Listing on the Directory is not an endorsement of the brand. A brand that meets the FTC definition and is not on the Directory cannot proceed, subject to a narrow exception the lender can explain.

Two other rules to know. An applicant operating under a franchise development (master franchise) agreement is not eligible, and a management agreement with the franchisor or an affiliate makes the applicant ineligible. For loans involving a franchise, the lender must also review credit information such as the number of failed franchisees and the cash flow projections the franchisor provides. Ask your lender early which of these documents it needs, because the franchisor's approval timeline and the lender's timeline have to fit together. For the lender's insurance side, see SBA lender insurance requirements.

What insurance should you expect, and what should you check?

Franchise agreements commonly include insurance requirements, often with more detail in the operations manual. We found no source on which coverages, limits or additional insured terms are typical, and they differ by brand, so read your agreement and do not rely on what a neighbor franchisee carries. Use this checklist when you review it:

Which coverage lines the agreement lists, such as general liability, property, auto, workers' compensation and umbrella.
The limits for each line, and whether they apply per location or in total.
Whether the franchisor must be named as an additional insured, and whether it asks for waivers of subrogation, notice of cancellation or primary and noncontributory wording (see additional insured, waiver of subrogation and primary noncontributory wording).
When proof of insurance is due, and whether it is due before the transfer closes or before you open under your own name.
Whether the entity that signs the franchise agreement is the same entity named on your policies, your lease and your certificates, so the franchisor's proof of insurance matches.
Any requirements about the insurer, and whether the franchisor may buy coverage and charge you if yours lapses.

Three related points:

A certificate is evidence, not the policy. See why a certificate is not coverage.
Workers' compensation ownership change. Under National Council on Compensation Insurance (NCCI) rules, entering or leaving a franchise agreement is not itself an ownership change, but buying the outlet's business generally is one. In NCCI states and in several states with their own bureaus, the policy requires you to report an ownership change to your insurer within 90 days, and the seller's claims history can follow the business to you. Independent bureaus and state funds have their own rules, so ask your broker how to report where you operate.
If the agreement asks for more than you carry, see when contracts require coverage you do not have.

A Morrow review can compare the agreement's insurance section with the policies you plan to buy, and any new terms depend on carrier underwriting.

Keep reading

Frequently asked questions

Do I get a franchise disclosure document if I buy an existing outlet?

Under the federal Franchise Rule, an existing franchisee who sells only their own outlet is generally outside the definition of a franchise seller, so the rule does not make the seller deliver an FDD. The franchisor may have to deliver one if it is significantly involved with you, for example by giving you financial performance information, and some state franchise laws are stricter than the federal rule. Ask franchise counsel how this applies to your deal.

Can the franchisor refuse to approve me as the buyer?

Often yes, within the terms of your franchise agreement. The agreement usually sets the approval right and the standards, and some state laws limit what a franchisor can require (Iowa, for example, lets it apply reasonable current qualifications). Read your agreement and ask franchise counsel how it applies in your state.

How much is a franchise transfer fee?

There is no standard amount. Practitioners describe fees that reimburse the franchisor's costs, fees set in the operations manual, a percentage of the sale price, or a new initial franchise fee. Look at FDD Item 6 and the agreement, and ask the franchisor for the figure in writing.

Do franchise agreements require specific insurance?

Many include insurance requirements, but the coverages, limits and additional insured terms differ by brand and are set in the agreement and operations manual. Read yours before you price your insurance, and ask your broker to compare it with the policies you plan to buy.

Is a franchise resale eligible for an SBA loan?

It can be, if the brand is on SBA's Franchise Directory when the arrangement meets the FTC definition of a franchise, and if the other eligibility rules are met. Directory listing is not an endorsement of the brand. Your lender confirms eligibility and which documents it needs.

References

Just bought a business? Get your insurance reviewed.

Send Morrow the declarations pages, loss runs and key contracts you inherited. Morrow can review them against the business you bought, flag gaps and request quotes where it makes sense. Any new terms depend on carrier underwriting.

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This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.

Buying a Franchise Resale: Approval, Fees and What Changes