Small Business Loans for Franchising Opportunities

There are approximately 750,000 franchise establishments operating in the United States today. But with a standard franchise fees ranging from around $20,000 to $50,000, and the cash flow needs that always come with opening a business, it’s critical to find a good financing option. Fortunately, several loan programs exist through the Small Business Administration that are targeted directly at potential franchisees.

What are SBA Loans for Franchises?

The Small Business Administration was established over 60 years ago to encourage entrepreneurs to start businesses and help them become economically viable. The SBA Partners with lenders and banks throughout the country to help secure loans for people who are trying to open a franchise location. These loans are meant to not only cover franchise fees to get the business started, but to cover short-term expenses and operational costs in the after opening to ensure success.

What are the Eligibility and Application Requirements?

 

SBA loans are available to businesses who have not been able to secure other forms of financing. The SBA does not issue loans directly to businesses, rather, they work with financial institutions to guarantee payment on their behalf, therefore lessening the risk the lenders would see from an unproven entrepreneur or one with a poor credit history.

Because the SBA is working with various institutions, the eligibility requirements defer to the lenders, rather than a uniform set of rules. Most require some sort of minimum down payment and some sort of minimum capital holdings requirement.

Potential borrowers would also need to provide a detailed business plan demonstrating the franchisee’s understanding of the business climate in their market and industry, as well as reasonable projections for cash flow, expenses and revenue. They will also need to prove that they are both investing some of their own equity, and that they have tried unsuccessfully to secure other forms of traditional financing.

What are the Restrictions?

Potential borrowers should anticipate a great deal of oversight, as these loans are still considered risky to financial institutions. Proof will need to be shown at several junctures that this money will be used (and has been used) to secure franchise rights and cover operating expenses. This is different than a traditional cash loan.

The SBA also has a “white list” of approved franchises that it is willing to provide funding to work with. This list is fairly large and inclusive, but the franchise must be on the white list for the SBA to consider guaranteeing an SBA loan

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