SBA Loans for Franchise Acquisitions: What You Need to Know

Why Franchise Acquisitions Are a Smart Investment

If you’re considering an SBA loan for a franchise, you’re choosing a business model that lenders already understand and trust. Franchises come with built-in brand recognition, proven operating systems, and established supply chains — all of which reduce the risk profile that makes lenders nervous about independent businesses.

But franchise financing through the SBA has its own rules, requirements, and nuances. Whether you’re buying a resale franchise (an existing location from a current franchisee) or launching a new franchise location, the SBA process works differently than a standard business acquisition.

Here’s what you need to know.

Why Lenders Love Franchises — And Why You Should Too

Franchises offer buyers several structural advantages that independent businesses simply can’t match:

• Proven business model: The franchisor has already figured out what works — you’re buying a playbook
• Brand recognition: Customers already know and trust the brand before you open the doors
• Training and support: Franchisors provide initial training, ongoing support, and operational guidance
• Established supply chains: Negotiated vendor relationships and purchasing power from day one
• Higher success rates: Franchise businesses statistically have lower failure rates than independent startups
• Easier financing: SBA lenders have pre-established comfort with many franchise brands

The franchise acquisition market spans everything from quick-service restaurants at $250,000 to hotel properties at $10 million+. Deal structures vary significantly by industry, brand, and whether you’re buying a new or resale franchise.

The SBA Franchise Directory: Your Starting Point

Before any SBA lender will finance a franchise, that franchise must be listed on the SBA Franchise Directory. This is non-negotiable.

The SBA Franchise Directory is a database maintained by the Small Business Administration that identifies franchise systems whose agreements comply with SBA lending requirements. Specifically, the SBA needs to verify that:

• The franchise agreement doesn’t give the franchisor excessive control over daily operations (which could make the SBA consider the franchisee a subsidiary rather than an independent business)
• The franchisee maintains sufficient independence to qualify as a “small business”
• The franchise agreement terms are compatible with SBA loan requirements

Most major franchise brands are on the directory. But some aren’t — and if your target franchise isn’t listed, the SBA will need to review the franchise agreement before approving any loan. This can add weeks or months to your timeline.

How to Check the SBA Franchise Directory

You can search the SBA Franchise Directory online through the SBA’s website. Look for your franchise brand and verify it’s listed as eligible. If it’s not listed, that doesn’t automatically mean you can’t get SBA financing — it means additional review is required.

At GoSBA, we check this for you as one of our first steps and handle any additional SBA review requirements if needed.

SBA Loan Structure for Franchise Acquisitions

SBA franchise financing typically falls into two categories: new franchise launches and resale franchise acquisitions.

New Franchise (Opening a New Location)

• Total project cost: Franchise fee + buildout + equipment + working capital + initial inventory
• Down payment: Typically 20-30% for new franchises (higher than acquisitions because there’s no operating history)
• SBA 7(a) loan: Up to $5 million
• SBA 504 loan: Available if the project includes significant real estate or equipment
• Term: 10 years for equipment and working capital; 25 years for real estate

Resale Franchise (Buying an Existing Location)

• Total project cost: Purchase price + franchise transfer fee + working capital
• Down payment: 10-15% (lower than new franchises because the business has operating history)
• SBA 7(a) loan: Up to $5 million
• Term: 10 years for business acquisition; 25 years if real estate is included
• Valuation basis: Historical financial performance, not franchisor projections

Resale franchises are generally easier to finance because lenders can underwrite based on actual financial performance rather than projections. If you’re a first-time business buyer, a resale franchise is often the path of least resistance to SBA approval.

The Franchisor Approval Process

Unlike buying an independent business, a franchise acquisition requires approval from the franchisor. This adds a layer of complexity that many buyers underestimate.

Here’s what the franchisor approval process typically involves:

• Application: You’ll submit a franchise application to the franchisor, including your financial background, business experience, and personal information
• Interview: Most franchisors conduct one or more interviews — often called “Discovery Day” — to assess your fit
• Financial qualification: The franchisor has minimum net worth and liquid capital requirements, often separate from SBA requirements
• Background check: Criminal and credit background checks are standard
• Training commitment: You’ll need to commit to completing the franchisor’s training program
• Territory review: For resale franchises, the franchisor may have right of first refusal or approval rights over the sale

Important: Franchisor approval and SBA loan approval are separate processes that run in parallel. You need both to close the deal. We coordinate both timelines to avoid delays.

Reviewing the Franchise Disclosure Document (FDD)

The Franchise Disclosure Document (FDD) is the single most important document in any franchise transaction. The FTC requires franchisors to provide this document at least 14 days before you sign a franchise agreement or pay any money.

Key sections to scrutinize:

• Item 5 — Initial Fees: Franchise fee, training fees, technology fees, and any other upfront costs
• Item 6 — Ongoing Fees: Royalty rates, advertising fund contributions, technology fees, and other recurring obligations
• Item 7 — Estimated Initial Investment: Total cost range to open or acquire a location
• Item 19 — Financial Performance Representations: If included, this shows actual financial data from existing franchisees (not all franchisors include this)
• Item 20 — Outlets and Franchisee Information: How many units opened, closed, and transferred — this tells you the health of the system
• Item 21 — Financial Statements: The franchisor’s audited financials — is the parent company healthy?

Red Flags in the FDD

Watch for these warning signs:

• High franchisee turnover or a large number of terminated agreements
• No Item 19 financial performance representation (not illegal, but makes due diligence harder)
• Excessive mandatory purchasing requirements from franchisor-approved vendors
• Restrictive transfer provisions that could limit your ability to sell later
• Pending litigation against the franchisor

Resale vs. New Franchise: Which Is Right for You?

Advantages of Buying a Resale Franchise

• Proven cash flow: You can see actual revenue and profit — no guessing
• Easier SBA financing: Lenders prefer deals with historical financials
• Existing customer base: Revenue from day one
• Trained workforce: Staff is already in place
• Lower down payment: 10-15% vs. 20-30% for new locations

Advantages of Opening a New Franchise

• Build it your way: New buildout, fresh equipment, your team from scratch
• Territory selection: Choose the best available market
• No inherited problems: No bad reviews, no disgruntled employees, no deferred maintenance
• Potentially lower total cost: Some new franchise buildouts cost less than buying profitable resales

Common Pitfalls in Franchise Financing

1. Not checking the SBA Franchise Directory first. If your franchise isn’t on the directory, you’ll face delays or potentially an inability to get SBA financing. Always verify eligibility before committing.

2. Underestimating total costs. The franchise fee is just the beginning. Buildout, equipment, inventory, insurance, working capital, and pre-opening expenses add up fast. Item 7 of the FDD gives ranges, but actual costs often land at the high end.

3. Ignoring the franchise agreement’s fine print. Renewal terms, transfer restrictions, non-compete clauses, and mandatory renovation requirements can all impact your long-term investment. Have a franchise attorney review every page.

4. Skipping franchisee validation. The FDD gives you contact information for existing franchisees. Call them. Ask about their actual financial performance, franchisor support quality, and whether they’d do it again. This is the most valuable due diligence you can do — and most buyers skip it.

5. Misaligning SBA and franchisor timelines. If your SBA loan approval comes through but the franchisor hasn’t approved you yet (or vice versa), deals can fall apart. Both processes need to be managed in parallel from day one.

6. Not accounting for royalties in debt service coverage. Your SBA lender calculates debt service coverage based on cash flow after royalties and advertising fund contributions. A 6% royalty + 2% ad fund means 8% of gross revenue goes to the franchisor before you service any debt. Make sure the numbers still work.

How GoSBA Helps With Franchise Financing

Franchise financing is one of our specialties at GoSBA Loans. We handle franchise SBA loans differently than standard acquisitions because the process is different:

• 50+ lender network: We work with lenders who specialize in franchise financing — including banks with preferred relationships with specific franchise brands
• $320M+ funded in 2025: Our deal flow includes franchise acquisitions across dozens of brands and industries
• SBA Franchise Directory navigation: We verify eligibility, handle directory-related issues, and manage the SBA’s franchise review process when needed
• 100% free service: We’re paid by the lender. Our franchise financing advisory costs you nothing
• Free business plans and financial projections: We prepare SBA-compliant business plans and financial projections — a $2,500-$5,000 value — at no charge. For franchises, we incorporate FDD data, comparable unit performance, and market analysis
• Timeline coordination: We manage the parallel tracks of SBA approval, franchisor approval, and seller negotiations to keep your deal on schedule

Whether you’re buying your first franchise location or adding to a multi-unit portfolio, we’ll get your financing right.

Ready to Finance Your Franchise Acquisition?

The franchise financing process has more moving parts than a standard business acquisition. The earlier you engage an experienced SBA loan advisor, the smoother your transaction will go.

Contact GoSBA Loans today for a free consultation. We’ll assess your franchise deal, check SBA directory eligibility, and build a financing strategy that gets you to closing day.