Franchise Strategies
Jul 14, 2025
Explore the benefits, eligibility, and application process of SBA franchise loans designed to help entrepreneurs thrive in their businesses.
SBA franchise loans are government-backed funds designed to help entrepreneurs start or grow franchise businesses. These loans reduce risk for lenders, making financing more accessible. Key benefits include lower interest rates, smaller down payments, and longer repayment terms compared to conventional loans. SBA loans are flexible, covering expenses like franchise fees, equipment, real estate, and working capital.
Main SBA Loan Options for Franchises:
SBA 7(a) Loan: Best for general business needs like startup costs, equipment, and working capital. Loan amounts up to $5 million with repayment terms of up to 25 years.
SBA CDC/504 Loan: Ideal for purchasing real estate or large equipment. Loan amounts up to $5.5 million, with fixed interest rates and a 10%-down payment requirement.
SBA Microloan Program: Offers smaller loans (up to $50,000) for startups or minor expenses like equipment or inventory.
Eligibility Requirements:
Your franchise must be listed in the SBA Franchise Directory.
A credit score of at least 690 and a minimum 10% down payment are typically required.
Additional documentation, such as a business plan and financial statements, is essential.
Pros:
Low interest rates and extended repayment terms.
Smaller down payments, preserving cash flow.
Government backing reduces lender risk.
Cons:
Lengthy application process with extensive paperwork.
Requires a personal guarantee and collateral in most cases.
To streamline the process, work with SBA-preferred lenders and ensure your franchise meets eligibility criteria early. Whether you're starting fresh or expanding, SBA franchise loans are a practical way to secure funding for your goals.
Step-by-Step Guide to Funding Your Franchise Startup with SBA Loans
Kinds of SBA Loans for Franchise Money Needs
The Small Business Administration (SBA) has many loan plans good for franchise money needs. Each plan fits some business needs, so knowing what you can pick helps you find the right one for your franchise aims.
SBA 7(a) Loan Plan
The SBA 7(a) Loan Plan is a top pick for many who own franchises because it's flexible and covers a lot of business costs. It helps with franchise fees, buying land, or money needs when starting up.
Loan amounts can reach up to $5 million, which works for many franchise buys. It's liked by many - back in 2017, SBA 7(a) loans were nearly $26 billion.
This plan is all-round, helping with everything from starter fees to buying land. Interest rates are talked over with your bank but must fit within SBA rules. They are set up like so:
Up to $50,000: Base rate + 6.5%
$50,001 to $250,000: Base rate + 6.0%
$250,001 to $350,000: Base rate + 4.5%
Over $350,000: Base rate + 3.0%
The SBA covers up to 85% of loans under $150,000 and 75% for more than that, making it less risky for banks and helping you get the yes.
Repayment terms change based on how you use the money: 5–7 years for running money, up to 10 years for gear, and up to 25 years for land. Payments are each month and can have fixed or change rates.
For fast results, look at SBA Express Loans, which give yeses in about 36 hours for loans up to $350,000. This choice is great if you must move fast on a franchise chance.
If your franchise needs big money in fixed things, the next plan might be better.
SBA CDC/504 Loan Plan
The SBA 504 Loan Plan is made for buying fixed things like business land or big gear. If your franchise needs a place or special gear, this might be your best choice.
Loan amounts go from $250,000 to $30 million, with the SBA covering up to $5.5 million. Not like the 7(a) plan, the 504 loan splits the money three ways: 10% from you, 50% from a bank, and 40% from a Certified Development Company (CDC). This cuts your first costs for big buys.
Interest rates are fixed, giving you the same monthly pay through the loan's life. Land loans last up to 25 years, while gear loans stop at 10 years.
The 504 plan is best for money projects like new building, more building space, or gear buys that last more than ten years. Yet, these loans can't be for running money, stock or paying off past debt.
There are firm rules on space use: you must use at least 51% of an old building or 60% of a new one right away, and fill 80% within 10 years. This sets the plan as a good fit for chains that need their own spot.
Thing | SBA 7(a) Cash Help | SBA 504 Cash Help |
|---|---|---|
Top Money You Get | $5 million | $5.5 million |
Best For | Day-to-day biz needs, cash-on-hand, tools | Land, big tool buys |
Cost To Borrow | Can change or stay the same | Stays the same |
Money Down | 10% | 10% |
Pay Back Time | 5–25 years by its use | 10 years (tools), 25 years (land) |
If you want less money, think about the SBA Microloan Program.
SBA Microloan Program
If you need a small loan, the SBA Microloan Program gives out up to $50,000 to small shops and some nonprofits. Most often, you get around $13,000. This fits well if you want to start a small franchise or buy some gear.
Interest rates are mostly from 8% to 13%, and you can pay back over seven years. You can use these loans for cash, stock, tools, seats, lamps, machines, and more. But, you can't use them to pay off old debts or buy land.
Groups that lend these microloans also give help and tips. They know about local shops and give good advice.
Each group sets its rules, often asking for something as backup and a promise to pay it back. This plan is great for first-time owners of a franchise, or for businesses that don't cost too much to start, like home shops, moving services, or tiny stores.
To start, you'll need to find an SBA-okay lender nearby who will help with the application and speak about loan details.
Eligibility Requirements for SBA Franchise Loans
If you're aiming to secure an SBA franchise loan, you'll need to meet both general SBA standards and specific franchise-related criteria. The SBA has clear guidelines to help lenders determine if your business qualifies for government-backed funding.
General SBA Loan Eligibility Requirements
To qualify for an SBA loan, your business must meet these baseline requirements: it must operate for profit, be based in the United States, and fall within the SBA's size standards, which vary by industry. Lenders also evaluate your creditworthiness and ability to repay the loan, especially if private banks have declined to offer favorable terms. These foundational criteria ensure your business model, ownership structure, and location are suitable for loan approval.
Franchise-Specific Eligibility Requirements
Franchisees face additional requirements beyond the general ones. A key condition is that your franchise must appear in the SBA Franchise Directory to qualify for an SBA-backed loan. This directory, updated weekly, includes franchises that the SBA has reviewed and deemed eligible.
The SBA explains:
"The SBA Franchise Directory helps lenders and CDCs to evaluate the eligibility of small businesses that operate under a franchising agreement."
Your franchise agreement must also allow you to operate as an independent business owner within the franchisor’s framework. On a personal level, franchisees usually need a credit score of at least 690, no bankruptcies within the last three years, a minimum down payment of 10%, and must pay the franchise fee before receiving loan funds. Additionally, a clean or well-documented criminal history and no outstanding federal debt are essential.
If your franchise isn’t listed in the SBA Franchise Directory, lenders cannot process your application under delegated authority. Starting June 1, 2025, the SBA reintroduced the Franchise Directory with updated requirements, including a verification checklist to ensure all franchised borrowers are listed. However, the SBA clarifies:
"Placement of a franchise brand in the Directory is not an endorsement or approval of the brand and does not ensure the success of the business."
If you operate under multiple franchise agreements, each agreement that meets the Federal Trade Commission’s definition of a franchise must also be listed in the Directory for your application to proceed.
Required Documents for SBA Loan Applications
Applying for an SBA franchise loan means gathering several essential documents. A detailed business plan outlining your franchise opportunity and revenue model is critical. While not all lenders require a business plan, most banks do.
Key financial documents include personal and business tax returns, financial statements, and proof of sufficient collateral. It's also a good idea to obtain credit reports from Equifax, Experian, and TransUnion, and address any errors before applying.
You’ll need to provide business licenses and legal documents, including your franchise agreement. If you’re buying an existing franchise, collaborate with the seller and franchisor to gather all necessary paperwork. Franchise-specific documentation should confirm that your franchise is SBA-approved and listed in the SBA Franchise Directory. If it’s not yet listed, submit it for SBA review early, especially if you’re working within a tight timeline.
To streamline the process, use a checklist to organize your documents and ensure nothing is missed. Keeping everything accurate and well-organized can improve your chances of approval. Stay in regular contact with your lender to address any questions or additional requirements quickly, and work with them to understand any specific provisions related to your franchise.
Step-by-Step SBA Franchise Loan Application Process
The process for securing an SBA franchise loan typically takes 60–90 days for 7(a) loans and up to six months for more complex loans.
Step 1: Check Franchise Eligibility
Start by confirming that your franchise is listed in the SBA Franchise Directory, which is updated weekly to determine eligibility for SBA-backed loans. If your franchise is listed, you can move forward with your loan application. Keep in mind that being listed doesn't mean the SBA endorses your franchise.
If your franchise isn’t listed, you’ll need to submit your franchise agreement, Franchise Disclosure Document (FDD), and any other required materials for review. Send these documents to franchise@sba.gov for evaluation. Additionally, franchises listed as of May 2023 must complete the new SBA Franchisor Certification by July 31, 2025, to remain in the directory.
Once your franchise's eligibility is confirmed or updated, gather all necessary documents to prepare for the application process.
Step 2: Collect Required Documents
Before you apply, ensure all franchise-related documents are in order. If you’re buying an existing franchise, work closely with the seller and franchisor to obtain all necessary paperwork. Staying organized at this stage is critical to keeping your application on track.
Once your documents are ready, you can move on to submitting your application.
Step 3: Submit Application and Complete Loan Process
With your franchise eligibility verified and documents prepared, it’s time to submit your application. Opt for an SBA Preferred Lender to speed up the approval process. For example, Citizens Bank, an SBA Preferred Lender, can approve smaller loans in under 10 days and more complex loans within 30–45 days. As one SBA Program Director at Citizens Bank explained:
"In recent years, the SBA has really streamlined the approval process to help businesses get the money they need faster".
If your funding needs are smaller, you might consider SBA Express Loans, which can be approved in as little as 36 hours. Alternatively, the SBA's Lender Match tool can connect you with lenders experienced in franchise financing.
Throughout the application and underwriting process, stay in close contact with your lender to address any credit-related concerns promptly. Once approved, finalize the loan terms and receive the funding you need to launch your franchise.
Pros and Cons of SBA Franchise Loans
Understanding the pros and cons of SBA franchise loans is essential for making smart financing decisions. These loans come with both significant advantages and a few challenges that potential franchise owners should weigh carefully.
Benefits of SBA Loans
SBA franchise loans offer several perks that make them an attractive option for entrepreneurs. Did you know that over 60% of new franchises in the U.S. are funded through the Small Business Administration? Plus, nearly one in five SBA loans is used specifically for franchise businesses.
One standout advantage is the lower interest rates. For instance, SBA 7(a) loans typically cap interest rates at 6.0%, which is far better than the 35%–350% APR charged by merchant cash advances. On top of that, repayment terms are generous - up to 10 years for working capital and as long as 25 years for real estate.
Another big draw is the government backing. As one expert puts it:
"The SBA loan for a franchise is essentially a commercial loan structured according to SBA requirements and backed by the government. This backing significantly decreases the risk for the lender, making it easier for you to secure funding".
These loans are also incredibly flexible. You can use the funds for a variety of needs, including working capital, equipment, debt refinancing, and real estate. And thanks to the SBA’s partial guarantee, the down payment requirements are lower, making these loans more accessible to entrepreneurs who may not have a lot of upfront cash.
Drawbacks of SBA Loans
Despite their benefits, SBA loans aren’t without their hurdles. One of the most common challenges is the extensive paperwork and long approval process, which can delay the launch of your franchise. On top of that, you’ll need to meet strict qualification criteria, including a high personal credit score (usually in the high 600s or above) and a solid business plan with realistic financial projections.
Another potential downside is the personal guarantee requirement. This means you’ll often have to put personal assets - like your home or savings - on the line as collateral.
How to Handle Common Problems
Fortunately, many of these challenges can be addressed with the right preparation:
Improve your credit score: Pay down debt, fix errors on your credit report, and gather all necessary documents, like financial statements, tax returns, and franchise agreements, well in advance.
Craft a strong business plan: Include detailed financial projections and demonstrate your understanding of the franchise model and local market conditions.
Choose the right financial partner: Margaret Ference, Senior Vice President and SBA Director at Huntington National Bank, emphasizes the importance of aligning with a lender who understands your goals:
"One of the most important things that we stress is that as a small business that is just starting out, growing or in transition, that you really take the time to make sure your financial partner aligns with your purpose and your vision and plan".
Get expert help: Consider working with SBA consulting services to improve your chances of approval.
Prepare for the process: While the application process can be intense, the long-term benefits are worth it. As Ron Feldman, Chief Development Officer at ApplePie Capital, explains:
"The SBA loan is a very painful process to go through, but once you have the loan, it is a relatively painless loan to service".
Getting Help with Funding and Professional Support
Navigating the SBA loan process can feel overwhelming, but having expert guidance makes it much more manageable. Considering the complexities involved, seeking professional support isn’t just helpful - it’s essential. Let’s break down why expert assistance matters and how Franchise Ki can be your go-to resource for franchise financing.
Why Professional Help Matters
In 2020, the U.S. Census recorded a staggering 59,490 business applications - a nearly 42% increase from the previous year. With so many entrepreneurs entering the market, having expert advice can give you a real edge when it comes to securing funding. SBA Preferred Lenders are known for offering flexible financing options and staying on top of necessary adjustments. Partnering with an SBA team ensures clear communication and minimizes the risk of errors during the loan process.
Robert Camara, a Business Development Officer and SBA specialist at Citizens Bank, highlights the importance of being prepared:
"With an SBA loan, you need to have a specific borrowing amount and purpose, and know how much money you'll need to have on hand."
Professionals like lawyers, accountants, and SBA loan experts can help you estimate costs, calculate potential profits, and navigate complicated paperwork. This is where Franchise Ki steps in, offering tailored advice to simplify the financing journey.
How Franchise Ki Helps with Franchise Financing
Franchise Ki provides free consulting services specifically designed to guide entrepreneurs through the franchise ownership process, including the often-tricky financing phase. Their personalized matching service identifies franchise opportunities that align with your interests, financial goals, and investment capacity. Plus, their team offers expert insights into financing options, such as SBA loans, to help you choose the best funding strategy for your situation.
What sets Franchise Ki apart is their robust database of thoroughly vetted franchise opportunities. This invaluable resource helps you make well-informed decisions about which franchises offer the right mix of growth potential and financing accessibility. With their blend of hands-on experience and practical advice, Franchise Ki supports you every step of the way - from your initial consultation to signing the franchise agreement.
Using Expert Help for Franchise Success
Starting your franchise journey with a team of trusted advisors can make all the difference. Industry experts recommend assembling a group that includes a lawyer, accountant, and SBA loan specialist. Franchise Ki can act as your central hub, connecting you with the right professionals for every stage of the process.
When selecting an SBA lender, Robert Camara advises:
"One of the most important things to consider when choosing a lender is to find one who can suit your needs - not just today, but in the future."
This forward-looking approach is exactly what Franchise Ki offers. Their free consultations allow you to explore your goals without any upfront costs. Since they’re compensated by franchisors after a successful match, their success is directly tied to yours. Franchise Ki’s network includes SBA lenders with proven track records, efficient application systems, and dedicated loan specialists. These partnerships ensure you’re working with lenders who truly understand both the franchise industry and SBA requirements.
Conclusion: Key Points from the SBA Franchise Loan Guide
Why SBA Loans Stand Out
SBA franchise loans offer a practical and accessible way for entrepreneurs to secure funding, even if they have limited credit history, minimal collateral, or less business experience. Backed by the federal government, these loans open doors that might otherwise stay shut for many aspiring business owners.
One of the biggest perks? Lower interest rates, which can save borrowers thousands over the life of the loan. With loan amounts reaching up to $5 million for SBA 7(a) loans and $5.5 million for CDC/504 loans, borrowers also benefit from longer repayment terms - up to 25 years. This extended timeline translates to lower monthly payments, which is especially helpful during the early stages of running a franchise.
SBA loans also provide flexibility that traditional lenders often don't. Features like lower down payments, relaxed overhead standards, and, in some cases, no collateral requirements make it easier to keep cash on hand for day-to-day operations. Plus, these funds can be used for a variety of purposes, including real estate, equipment, working capital, or even refinancing existing debts.
Practical Advice for Franchise Financing
To make the most of these benefits, here are some tips to fine-tune your financing approach:
Check Franchise Eligibility: Confirm your franchise meets SBA eligibility requirements early in the process. This simple step can save you from delays down the road.
Pick the Right Loan Type: Match the loan to your needs. SBA 7(a) loans are great for working capital, equipment, and renovations, while CDC/504 loans are better suited for real estate and major equipment purchases.
Prepare for a Personal Guarantee: If you own 20% or more of the franchise, you’ll be required to provide a personal guarantee. This shows your commitment to the investment.
Work with Experts: Use resources like the SBA’s Lender Match Tool or hire a consultant to connect with experienced lenders . Consultants can help streamline the application process by identifying potential issues and matching you with the right lender.
Have a Backup Plan: If an SBA loan doesn’t work out, consider other options like franchisor financing, short-term business loans, or equipment-specific financing. Diversifying your funding strategy can improve your chances of success.
The franchise industry is thriving, with business applications jumping by nearly 42% in 2020. By preparing thoroughly, seeking expert advice, and choosing the right SBA loan program, you’ll be well-equipped to join the growing ranks of successful franchise owners.
FAQs
What makes an SBA 7(a) loan a better option for financing a franchise compared to other SBA loan programs?
The SBA 7(a) loan is often a go-to option for franchise financing because of its borrower-friendly terms and versatility. With loan amounts reaching up to $5 million, repayment periods extending up to 25 years, and competitive interest rates, it’s designed to accommodate a variety of franchise opportunities. Plus, its flexible collateral requirements can make it a feasible choice for those without substantial assets to offer as security.
These features make the SBA 7(a) loan a reliable financing option for aspiring franchise owners looking for terms that align with their business goals.
How can I get my franchise listed in the SBA Franchise Directory, and why does it matter for securing a loan?
To get your franchise included in the SBA Franchise Directory, the franchisor needs to submit specific documents directly to the SBA. These typically include the franchise agreement, the Franchise Disclosure Document (if applicable), and any other contracts that an SBA loan applicant would need to sign. Once the SBA reviews and approves these documents, the franchise is added to the directory.
This listing is important because it verifies that the franchise meets the SBA's requirements for financial assistance. For lenders, the directory simplifies the loan approval process by removing the need to review franchise documents individually. For franchisees, being listed can speed up and simplify the process of securing SBA-backed loans.
How can I increase my chances of getting approved for an SBA loan if I have a low credit score or limited collateral?
To boost your chances of getting an SBA loan even with a lower credit score or limited collateral, start by improving your business credit score. Pay your bills on time, keep your credit utilization in check, and fix any errors on your credit report. Showing steady revenue and profitability can also make your application more appealing.
If collateral is a concern, you might want to look at smaller loans. SBA loans under $50,000 often don’t require collateral. Another option is to bring in a co-signer with strong credit, which can significantly improve your chances. While lenders typically prefer a personal credit score of 650 or higher, a detailed business plan and solid financial projections can sometimes make up for a weaker score.
Also, check out SBA programs specifically designed for startups or businesses with fewer assets. These programs tend to have more flexible requirements, making them a great option for entrepreneurs in your position.
