How Do SBA Franchise Loans Work?

Opening a small business is a great goal. Small businesses are the backbone of America’s economy, and they give entrepreneurs the freedom to make money without answering a boss. That said, not everyone wants to face the entire process on their own. Franchising can be a great intermediate road, providing entrepreneurial freedom along with proven business methods for new owners. SBA franchise loans can be a great help for getting started.

What Are They?

An SBA franchise loan is a small business loan specifically designed for franchisees. It can cover a variety of needs that franchisees typically have before opening day, including real estate purchases, remodeling, property improvements, expansion, construction and similar needs.

You can also use an SBA loan to purchase equipment. The funding amount varies depending on the franchise, but it’s often possible to purchase heavy machinery, restaurant equipment, payment systems and other types of equipment needed to open your location.

Some franchises provide in-house financing for required equipment, but others don’t. Franchisees generally have a hard time qualifying for conventional bank loans for this type of need, but SBA franchise loans are more accessible.

Who Can Qualify?

The application process for SBA financing for franchisees works a little differently than other SBA loans. The Small Business Administration maintains a list of approved franchises for financing. Qualifying isn’t difficult as long as the franchise has approved you and is on the SBA directory.

There are some credit score requirements, capital requirements and similar qualifications, but you likely had to already meet those requirements as part of the franchising application process. You don’t need to have past experience as a business owner or experience as a franchisee. However, showing that you know how to manage finances is a plus.

Why Apply?

SBA loans are amazing tools for any small business, and franchised businesses are no exception. These loans offer extremely low rates of interest along with generous terms for repayment. They can save your location a lot of money in the long run and provide up to 25 years for repayment.

Many SBA loans also provide extra working capital. This can be an extraordinary help if this is your first time franchising because it gives you a buffer as you settle into the role. The more working capital you have available, the better you can adapt to unexpected situations at the beginning.

Getting started doesn’t take long, either. You can generally get prequalified in about a week.