Most people buying into a franchise for the first time don't spend a lot of time thinking about interest rates — until they have to. With the RBA lifting rates again in March, that moment has arrived for a lot of prospective franchisees. And while the immediate reaction is usually "my repayments will be higher," the reality is a bit more layered than that.
How much you can afford to repay ultimately drives how much you can borrow. As rates rise, those repayments increase, which affects both how lenders assess your application and how much breathing room you’ll have in those first months of trading.
In this environment, borrowing to your absolute limit is rarely a good strategy.
It’s Not Just About Higher Repayments
Yes, repayments go up when rates rise. But what catches a lot of buyers off guard is that borrowing capacity often comes down at the same time.
Lenders don’t just assess your loan at the actual rate you’re paying — they build in buffers. As rates increase, those buffers increase as well. The result is that you may qualify for less funding than you would have even six months ago, and nobody likes to get caught short.
At the same time, lenders tend to become more cautious about other factors. There’s generally more scrutiny on your personal financial position, your existing debts, and how realistic the business projections are.
Even when applying for a fixed-rate loan, the lender may look at your other commitments and ask “what if?” So, it’s not just “can I get the loan?” — it’s “does the deal still make sense once everything is factored in?”
Cash Flow Becomes More Important Than Ever
For most franchisees, the first 12 to 24 months are where things either settle in or become stressful.
You’re building revenue, learning the business, and managing costs — often all at once. In that phase, consistency matters.
When rates are low and stable, small movements don’t have much impact. In a rising rate environment, that buffer disappears pretty quickly. A few increases can start to put real pressure on your monthly cash flow.
That’s why more buyers are starting to think less about “what’s the lowest rate?” and more about “how predictable are my repayments?”
Certainty isn’t everything, but it does remove one variable at a time when you’re trying to get a business established.
Fixed vs Variable: It’s Not a Right or Wrong Answer
This is the question that comes up in almost every conversation at the moment.
Variable rates give you flexibility. You can usually make extra repayments, refinance more easily, or adjust things if your situation changes. The trade-off is that you’re exposed to further rate movements.
Fixed rates do the opposite. You lock in your repayments, which gives you clarity and consistency. The downside is that you’re typically giving up some flexibility.
What’s important is not trying to “pick the market” or guess where rates are going. It’s about understanding your own situation. If you’re more risk-averse, or you’re going into a business where cash flow might take time to stabilise, certainty can be valuable. The more variable your expected income early on, the more valuable it becomes to have fixed, predictable outgoings.
In some cases, a combination of both can make sense.
Getting Approved May Be a Bit Less Forgiving
Another shift we’re seeing is that lenders are simply a bit less forgiving than they were.
Things like credit cards, personal loans, and even buy-now-pay-later facilities can have a bigger impact on your borrowing capacity than people expect. In some cases, it’s the difference between getting approved and falling short on serviceability.
Your credit history also matters more. Missed payments or a messy credit file that might have been overlooked previously are now more likely to be flagged.
And beyond that, lenders want to see that you understand what you’re getting into. A clear view of the franchise, realistic expectations around revenue, and how the loan will be serviced all play a role.
The stronger and cleaner the application, the smoother the process tends to be.
Structure Matters More Than the Rate
One thing that often gets overlooked is how the loan is actually structured. Rate is important, but it’s only one piece of the puzzle. The term of the loan, the repayment profile, and how it aligns with the business all matter just as much — if not more.
For example, stretching the term slightly can ease pressure on monthly cash flow early on. That can make a big difference when you’re still building the business.
On the flip side, going too aggressive on repayments can create unnecessary stress, even if the deal looks fine on paper.
In the current environment, getting that balance right is more important than trying to shave a small margin off the rate.
Final Thought
Rates will keep moving — that's just part of the landscape. What matters for franchise buyers right now is that the margin for error is a bit thinner than it was, which means the finance decisions you make upfront carry more weight than they used to.
Getting approved is one thing. Setting your funding up in a way that gives the business room to breathe is another.
The buyers who come out of that first year in good shape aren’t necessarily the ones who secured the lowest rate — they’re the ones who thought carefully about structure, cash flow, and how much debt they could realistically carry.
Phil Chaplin the Chief Executive Officer of the CFI Finance Group, a specialist finance company servicing the franchise, accommodation, and fitness sectors as well as small businesses more broadly across Australia and New Zealand.
Phil has over 20 years experiance in providing finance to businesses across Australia and New Zealand and has managed finance companies in the private and banking sectors, he is a former chair of the Equipment Finance division of AFIA.
