SBA Loans for Franchise Buyers: How to Finance Your Franchise with 10% Down
SBA 7(a) is the most common franchise financing tool — used for goodwill, equipment, working capital, and leasehold improvements. With 10–15% down and pre-approved franchise brands, you can launch your franchise with minimal out-of-pocket capital.
How SBA Franchise Financing Works
SBA 7(a) loans are the most common financing tool for franchise buyers, offering low down payments and long repayment terms for pre-approved franchise brands.
SBA Franchise Directory
Most major franchise brands are pre-approved and listed in the SBA Franchise Directory. If your brand is listed, the approval process is faster and more streamlined. Unlisted brands can still qualify but require additional review.
Typical Structure
10–15% down payment, 10-year fully amortizing repayment, fixed or variable rate options. Covers goodwill, equipment, working capital, leasehold improvements, and franchise fees.
Timeline
45–90 days from application to funded for most franchise transactions. Pre-approved brands in the SBA Franchise Directory typically move faster through underwriting.
Zero-Cash Scenarios
Seller notes and other eligible equity sources can reduce your out-of-pocket cash requirement to near zero in some cases. Seller notes must be on full standby for at least 2 years.
What SBA 7(a) Covers for Franchises
Goodwill: The intangible value of the franchise brand and business model. Equipment: Kitchen equipment, POS systems, furniture, vehicles. Working Capital: Initial inventory, payroll, marketing, operating expenses. Leasehold Improvements: Build-out costs for your franchise location. Franchise Fees: Initial franchise fee paid to the franchisor.
SBA 7(a) vs. 504 for Franchise Financing
Both programs work for franchise financing, but they serve different purposes. Here's how to choose the right one for your franchise acquisition.
SBA 7(a)
The go-to program for most franchise acquisitions. Covers goodwill, working capital, soft costs, equipment, and leasehold improvements.
SBA 504
Best when you're also buying the real estate for your franchise location. Lower down payment and fixed rate for the CDC portion.
Which Program Should You Choose?
- You're leasing the franchise location
- You need working capital included
- You want faster closing (no CDC involved)
- You're buying the real estate
- You want the lowest down payment (10%)
- You want fixed-rate certainty on 40% of the loan
Zero-Cash and Low-Cash Scenarios
Seller notes and other eligible equity sources can significantly reduce your out-of-pocket cash requirement. Here are the most common strategies franchise buyers use to minimize cash at closing.
Seller Note as Equity
The seller agrees to hold a note for part of the purchase price, which counts toward your equity injection. The note must be on full standby (no payments) for at least 2 years under SBA rules.
Partner Equity Injection
A business partner or investor contributes equity capital to the deal. They become an owner in the franchise and their capital counts toward the required equity injection.
Gift Funds from Family
SBA allows gift funds from family members to count toward your equity injection. The gift must be documented with a gift letter stating no repayment is expected.
Rollover for Business Startups (ROBS)
Use retirement funds (401k, IRA) to invest in your franchise without tax penalties or early withdrawal fees. The retirement account becomes a shareholder in your franchise corporation.
Combining Strategies
These strategies can be combined to further reduce your cash requirement. For example: seller note + partner equity + gift funds can bring your out-of-pocket to near zero in some franchise acquisitions.
Important: All equity sources must be properly documented and approved by the SBA lender. PeerSense works with lenders who understand these structures and can guide you through the documentation requirements.
What Lenders Look For in Franchise Financing
Understanding lender criteria helps you prepare a stronger application and move faster through the approval process.
Franchise Disclosure Document (FDD)
Lenders review the FDD to understand the franchise system, fees, obligations, and litigation history. A clean FDD with strong Item 19 financial performance data strengthens your application.
Item 19 Financial Performance
Item 19 of the FDD shows actual financial performance of existing franchise locations. Lenders use this data to project your franchise's cash flow and debt service coverage.
Industry Experience
While franchise experience isn't required, lenders value transferable business skills, management experience, and industry knowledge. The franchise's training program helps mitigate lack of direct experience.
Credit Score
Most SBA lenders prefer 650+ credit score, with 680+ being ideal. Credit score is just one factor — lenders also evaluate your overall financial profile, net worth, and liquid capital.
Liquidity and Net Worth
Lenders want to see liquid capital beyond your down payment to cover initial operating expenses. Net worth requirements vary by loan size, typically 1:1 ratio (net worth equal to loan amount).
Franchise Brand Strength
Established franchise brands with proven track records and strong unit economics are viewed more favorably. Pre-approved brands in the SBA Franchise Directory receive faster approval.
Don't Meet All Criteria? You May Still Qualify
Lenders evaluate your overall profile, not just individual factors. A strong franchise brand can offset lower credit scores. Significant liquid capital can compensate for limited industry experience. Partner equity can strengthen a marginal application.
PeerSense works with multiple SBA lenders who have different risk appetites and underwriting criteria. If one lender says no, we have other options in our network.
Frequently Asked Questions
Common questions about SBA franchise financing
Most major franchise brands are pre-approved and listed in the SBA Franchise Directory. If your brand is listed, the approval process is faster. If not listed, the brand can still qualify but requires additional review. Check the SBA Franchise Directory or ask your PeerSense advisor to verify your brand's status.
Ready to Fund Your Franchise with SBA?
PeerSense identifies the right capital source from our network of 500+ lenders, private equity firms, and institutional advisors — and makes the introduction. You get a straight assessment of where your deal fits and a direct connection to the source most likely to close it.
We'll connect you with SBA lenders who understand franchise financing and can structure your deal for maximum leverage.
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