FRANCHISE SBA LOAN
SBA Consultant
Franchise SBA Loan
The SBA offers loan programs to help qualifying businesses start or purchase an existing franchise. These loans may be used to for the actual purchase of a franchise and help cover some costs and expenses associated with purchasing the franchise. The 2 most popular franchise SBA loans that are offered are:
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Franchise SBA 7a Loan
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Franchise SBA 504 Loan
The terms and conditions, like the guaranty percentage and loan amounts, may vary by the type of loan. The Small Business Administration works though intermediary lenders to provide SBA Franchising Loans up to $5,000,000 for the following purposes:
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Franchise Purchase
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Working capital
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Real Estate
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Inventory
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Supplies
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Furniture
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Fixtures
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Machinery
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Equipment
SBA CONSULTANT wants to be your Franchise SBA loan strategy expert. Call us today to schedule an appointment.
SBA FRANCHISE LOAN - Best Franchise Financing
Why are SBA Franchise Loans so popular? Through one of the SBA's existing Programs (microloan, 7a or 504), the Small Business Administration (SBA) provides entrepreneurs the means to purchase or start a franchise. These loans are extremely popular with business owners due to their favorable terms and relatively low interest rates.
SBA FRANCHISE LOAN - What Is It?
What is an SBA Franchise Loan? An SBA Franchise Loan is the funding mechanism that an entrepreneur utilizes with the help of the Small Business Administration to help procure an approved franchise. The subject franchise may be either an existing location purchased through a transfer agreement, or a brand new location that has been approved by the franchisor (corporate). Business loans up to $5,000,000 may be obtained through the Small Business Administration's two most popular business funding programs; the SBA 7a Loan Program and the SBA 504 loan Program. For more information on the SBA 7a or SBA 504, click on the type of SBA loan:
SBA FRANCHISE LOAN - Changes of Review Process
The U.S. Small Business Administration (SBA) has issued Standard Operating Procedure (SOP) 50 10 5(J), effective January 1, 2018.
Among other changes, SBA has revised the review process for businesses applying for 7(a) and 504 loans that are or will be operating under a franchise, license, dealer, jobber, or similar agreement that meets the Federal Trade Commission (FTC) definition of a franchise.
These changes are found in Subpart B, Chapter 2, Paragraph II.D.8 for 7(a) loans and Subpart C, Chapter 2, Paragraph II.D.8 for 504 loans.
This Notice describes the key changes made to the franchise review process in SOP 50 10 5(J) to improve consistency and certainty for Lenders, Certified Development Companies (CDCs), franchisors, franchisees, and SBA personnel.
Under these changes, Lenders and CDCs will no longer have to review franchise or other brand documentation for affiliation or eligibility.
For loans processed through December 31, 2017, SBA Lenders must continue to follow the franchise review procedures set forth in SOP 50 10 5(I) and SBA Policy Notice 5000-1941 (effective 2-14-2017),
SBA FRANCHISE LOAN - General Qualifications
What business qualities does the SBA look for to approve an SBA Franchise Loan? As per the Small Business Administration guidelines, in addition to basic SBA eligibility requirements listed for each respective program, there are additional qualities which can increase your likelihood of obtaining an SBA Franchise Loan
A decent credit score - preferably above 680.
No recent bankruptcies, foreclosures, or tax liens.
Franchise has been in business for at least two years,
The ability to provide sufficient collateral.
The ability to make a down payment of at least 10% if your intended use of funds is to purchase Real Estate, supplies, inventory or equipment.
Sufficient cash flow (shown in projected financial statements) to meet your debt obligations.
Sufficient working capital (once you subtract liabilities from assets).
“Good character” according to the SBA (partially decided based on your track record of managing your resources and day-to-day business affairs).
If the business applying for the Franchise SBA Loan Program is unable to check all of the above, the business is not automatically disqualified from the program.
Allowable Uses of Funds
Working Capital
Purchase Equipment
In order to get approved for a Franchise SBA Loan, you’ll need to prove that your plans for the funds are appropriate. While the specific allowable uses depend on the amount you want to borrow, you can generally use Franchise SBA loan for operational expenses, hiring employees, purchasing new inventory or equipment, supporting marketing costs, or other working capital. Real estate purchases are allowed.
Collateral Requirements
Lender Will Definitely Require Collateral
While the SBA guarantees a large percentage of 7a Franchise SBA Loans and a sizeable portion of the 504 Franchise SBA Loans, your lender is still on the line for the remaining non-guaranteed percentage. The collateral you provide for obtaining the SBA Franchise Loan goes a long way in persuading the lender to loan you the money; offering collateral instills confidence in recovery should you default.
Guidelines For Startup Franchises
I am Starting a New Franchise, Do I Qualify?
To be clear, although the franchise location that you will be starting may be brand new, more than likely, the franchise itself has been in business for a very long time. Usually, startups are seen as risky investments; 50% of small businesses fail within the first five years. But not so much with franchises, as the business concept has proven its model and the franchise corporation has developed a blue print for your franchise's success.
Franchise SBA Loan Program
The Franchise SBA Loan Program allows businesses to borrow up to $5,000,000 for qualified franchises and businesses. Higher SBA Franchise Loan amounts mean that the lender will require more in terms of sufficient collateral to secure their investment.
Microloans For SBA Franchise
Since the SBA Microloan has a maximum loan amount of $50,000, the program may actually be utilized to purchase a franchise. Most franchise brands cost significantly more than $50,000, but there are certain franchises that may be launched for that amount. The credit decision as well as terms of the loan are generally made by the lender.
Planning Requirements
Franchise SBA Loans under both 7a and 504 programs will require an official and detailed Franchise Business Plan. This important document should include a thorough Market Analysis for the franchise in questions as well as a detailed Financial Plan conforming to strict SBA guidelines for a minimum of 3 years.
Next Step for SBA Franchise Loan
If you or a business you own are interested in obtaining a SBA Franchise Loan, we very much want to hear from you. SBA Consultant's Franchise SBA Loan services can provide you with as little or as much guidance as you need to get the loan approved. We can even help you prepare a full Business Plan and essential documents required by the lender's loan application.