3 Small Business Administration Loan Programs to Finance Your Franchise

Franchises are a simple and effortless way to jump right into the business world, to finally be your own boss.

Also, franchises are probably the easiest businesses to finance because they generally don’t carry a lot of start-up risk (unknown risk) that banks and other commercial lenders tend to avoid. Since most franchises come with strong brands, proven profitability and cash flow histories and tend to do well almost anywhere (globally), these business models have the propensity to fly through the underwriting process. of loans and go from application to financing in no time. time plane.

In fact, the Small Business Administration (SBA), in hopes of speeding up their funding process and funding more franchise loans, has created an “SBA Approved Franchises” list, a list of franchises that the SBA has already approved. screened through their underwriting process. .

According to Jim D, former moderator of the SBA.gov website;

“SBA-approved franchises are select business opportunities whose deals have been accepted by the SBA. When it comes to getting an SBA-backed loan, those applying for an approved franchise have it easier and faster. SBA-approved franchise applicants SBA benefit from a streamlined review process that speeds up their loan application. Because the particular franchise is pre-approved, the loan review is less complex and focuses on specific aspects of that brand’s business plan.”

So if the SBA is so into franchises, what loan programs do they offer?

3 SBA Loan Programs for Franchisees

The first is the first. The SBA does not make loans directly to business owners or franchisees. Therefore, you will still need to take your loan application to an SBA lending bank or financial institution. However, these originators also know that the SBA likes proven franchise businesses and are more than willing to review and process your application.

When looking for an SBA loan for your franchise, you should focus on your specific financial needs and combine them with the SBA loan program as follows:

  1. SBA 7(a) Loan Program: This is the SBA’s flagship program designed to finance almost every aspect of a business.

According to the SBA, the 7(a) loan program can be used:

  • To provide long-term working capital to pay operating expenses, accounts payable, and/or purchase inventory
  • Short-term working capital needs, including seasonal financing, contract fulfillment, construction and export financing
  • Revolving funds based on the value of existing inventory and accounts receivable, under special conditions
  • To buy equipment, machinery, furniture, fixtures, supplies or materials
  • To purchase real estate, including land and buildings.
  • To build a new building or renovate an existing building
  • To establish a new business or assist in the acquisition, operation or expansion of an existing business
  • To refinance existing business debt, under certain conditions

This program has a maximum loan amount of $5 million with an average, in 2012, the last published figure, of about $337,730.

Since most SBA loans come with longer loan terms, making monthly payments even more affordable, loan maturities for real estate can be extended to 25 years, up to ten years for equipment, and up to seven years for working capital.

Now, all SBA loans are supposed to be fully secured by business or personal assets. However, while the SBA expects this, it will not reject a loan based solely on a lack of adequate collateral.

Lastly, know that these loans require the borrower to provide 20% or more as a down payment or their own equity in the deal. Therefore, the SBA will only guarantee 80% of the amount needed.

As you should be able to see, this SBA program can cover almost all of your franchise financing needs, from real estate purchase and development to business equipment and working capital needs. So if that’s what you need to buy or grow your franchise, start here.

  1. CDC/504 Loan Program: The 504 loan program, like the 7(a) program, is ideal for franchises. However, this program is limited to the purchase of real estate and equipment only.

According to the SBA, the 504 loan program can be used for;

  • The purchase of land, including existing buildings.
  • The purchase of improvements, including grading, street improvements, utilities, parking lots, and landscaping.
  • The construction of new facilities or the modernization, renovation or conversion of existing facilities

But, the real benefit with this loan program is that the principal portion or down payment required from the borrower is less, usually around 10%, thus requiring less out-of-pocket expenses.

How this program works. This program was designed to help facilitate additional business growth and development within community areas. Therefore, when a 504 loan is applied for and approved, a local Community Development Corporation (CDC), the community portion of the loan, will finance and guarantee up to 40% of the loan application, a local SBA-approved bank will finance 50% of the loan application leaving the remaining 10% of the borrower. Three partners working for the same goal: the long-term success of your franchise.

This program can provide up to $5 million for businesses that can and will create jobs in the community, up to $5 million for businesses that provide a declared public benefit, such as energy reduction or alternative fuels, as well as rural development, minority, women, or veteran businesses . businesses, export businesses, just to name a few, these are stated goals that are known to have a public benefit and as such the SBA wants to fund these businesses. And, up to $4 million for small manufacturing businesses that create jobs.

Finally, to make these loans and their resulting payments more affordable, ensuring the long-term success of the borrower, the SBA will allow loan terms of 10 and 20 years.

  1. SBA Express Program: The SBA express program is like the little brother of the SBA 7(a) loan program with several benefits and restrictions.

First of all, this program offers an expedited review process. In fact, the SBA guarantees that your express loan application will receive a response in less than 36 hours. But while you may receive a response, this does not mean that you will receive an approval. It simply means that you will know that the SBA received your application and they will usually ask you for additional information at that time, but at least you will know that work is being done.

Second, the maximum loan amount under this program is only $350,000. Which isn’t a huge amount these days, but it could be enough to land your dream franchise, especially when compared to the average full 7(a) program loan amount of about $337,730.

Third, the SBA will only guarantee up to 50% of the loan amount, which means that most of the risk of the loan will rest with the bank or lender. However, if your deal is strong enough, this 50% guarantee could be the difference between approval and denial.

Lastly, these loans offer loan terms of up to 7 years only and can be used for almost any business capital need.

What is a small business?

Now, to qualify for an SBA loan, your franchise must meet the SBA’s definition of a small business of:

  • Be for profit.
  • Have up to 500 employees, up to 1,500 for manufacturing.
  • Have less than $21 million in annual receipts, less for certain businesses or industries.

That almost all individual franchise businesses fit.


Franchising is a great way to enter the business world with a proven and well-known business model. However, like almost every business on the planet, financing that franchise, either to start it up or to grow it, remains a difficult hurdle to overcome.

However, as noted and hopefully shown, franchises tend to get more favorable approval rates when using government-guaranteed financing programs like these SBA loans. And it’s not just that the SBA views these types of businesses in an encouraging light, but also banks and other commercial lenders: those other partners needed to get your SBA loan approved and funded.

However, just because your chosen franchise is or isn’t on an SBA-approved list, and your loan application and use of funds meet these criteria, doesn’t mean you’ll automatically be approved. The only way to know for sure if you and your franchise will be approved is to apply. And, since you must apply no matter which option you choose, you can also apply with a financing organization or commercial financier that already works with the SBA; You can only double your chances of obtaining the capital you need to fully realize your franchise. dreams.

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