The Ultimate Guide To SBA Franchise Loans
Franchisees that need extra funding for their franchise business can look to low-interest SBA loans. Find out which SBA loans are best for franchises and whether you qualify.
Whether you’re starting a new franchise or growing an existing one, an SBA franchise loan can be a helpful tool. If eligible, franchises can enjoy the flexibility and low rates of a small business loan backed by the SBA.
Keep reading to learn more about SBA loans for franchises and if these loans are the right funding option for your business.
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What Are SBA Loans For Franchises?
The Small Business Administration is a federal government agency that supports small businesses with resources like educational materials, training, and small business loan programs.
The SBA itself doesn’t distribute funds to businesses. Loans are funded by SBA-approved intermediary lenders like banks, credit unions, and nonprofit organizations. What the SBA does is guarantee a large portion of each loan. By guaranteeing that most of the loan will be paid for even if the borrower defaults, lenders take on less risk and are more likely to fund small businesses.
What this means is that businesses and franchises that can’t find funding elsewhere may be eligible for a low-interest, long-term loan to use for expenses like equipment, business expansion, or even acquiring a new business.
Types Of SBA Loans For Franchises
There are three types of SBA loans that work for franchises: the Standard 7(a) loan, the SBA Express loan, and the CDC/504 loan.
SBA Franchise Loan Eligibility Requirements
The first step in the SBA application process is to determine if your franchise is eligible for a loan. Then, you can determine if you meet all other requirements of the lender and the SBA.
How To Apply For An SBA Franchise Loan
Once your lender has determined that your franchise is eligible for an SBA loan, the application process is the same as it is for other businesses.
If you haven’t found a lender yet, you can use the SBA’s Lender Match service to find an SBA-approved lender in your area. You can also ask for a referral from your financial institution. There are also online brokers and lenders like SmartBiz and Lendio that can help you get an SBA loan.
During the application process, you will be required to provide information about yourself, other owners, and your business. You will need to choose which loan you’d like to receive, choose your borrowing amount, and explain your purpose for the loan.
Your loan package that will be submitted to the SBA will include your application as well as documentation like:
- Franchise agreement
- Business licenses and permits
- Personal financial statements
- Resumes for all owners
- Federal income tax returns
- Balance sheets
- Profit and loss statements
- Cash flow projections
- Schedule of collateral
- Business leases
If you are applying for the 504 loan, you will need to provide a letter of intent from the third-party lender that explains why the lender is unable to fund the entire project.
Your lender can provide details on additional documentation requirements.
Your credit score and history will be checked to determine if you qualify for the loan. Additionally, the lender will view your financial documentation to ensure that your business is financially sound and able to repay the loan.
If you meet all requirements, your package will be processed, loan underwriting will begin, and funds will be disbursed. The entire SBA loan application process generally takes 30 to 90 days from start to finish.
Alternatives To SBA Franchise Loans
There may be circumstances when an SBA franchise loan isn’t right for your business, such as:
- You don’t meet the basic SBA requirements
- You need fast funding
- You have bad credit
- Your franchise is ineligible
Fortunately, there are many alternatives to SBA loans, including:
- Installment loans
- Short-term loans
- Lines of credit
- Equipment financing
- Invoice factoring
With a little research, you can find the best franchise loan to meet the unique needs of your business.
SBA Franchise Loan FAQs
The Bottom Line On SBA Franchise Loans
SBA loans for franchises can provide the capital you need to grow your business. While the process can be time-consuming and difficult, the low interest rates and long repayment terms can help you take your franchise to the next level.