- Yes, you can use SBA loans to buy a franchise—it’s one of the most common uses of SBA 7(a) financing.
- The franchise must be listed in the SBA Franchise Directory (or submit for approval) to qualify for SBA financing.
- Standard down payment is 10%, but existing franchise purchases with seller notes on standby may qualify for 5% cash down.
- Existing franchise locations are generally easier to finance than new builds because they have proven cash flow.
Yes, you can use an SBA loan to buy a franchise—and it’s one of the most common uses of SBA 7(a) financing. Franchises are attractive to SBA lenders because they come with proven business models, established systems, and franchisor support.
But not every franchise qualifies for SBA financing, and the process has unique requirements. This guide covers everything you need to know about financing a franchise with an SBA loan.
SBA Franchise Eligibility Requirements
What Makes a Franchise SBA-Eligible?
For a franchise to qualify for SBA financing, it must meet specific criteria established by the SBA:
- Listed in the SBA Franchise Directory — The franchise agreement must be reviewed and approved by the SBA
- Not excessive control — The franchisor cannot exercise so much control that the franchisee is essentially an employee
- Standard FTC compliance — Franchise must comply with FTC Franchise Rule disclosure requirements
- Small business standards — Combined with affiliates, must meet SBA size standards
The SBA reviews franchise agreements for excessive control. Per SBA SOP 50 10 8, they examine: control over employees (can franchisor hire/fire staff?), control over pricing (does franchisor set all prices?), financial control (does franchisor control bank accounts?), and day-to-day operations. If a franchise fails affiliation review, it won’t be listed in the SBA Franchise Directory.
The SBA Franchise Directory
What Is the Franchise Directory?
The SBA Franchise Directory is a database of franchise brands whose agreements have been reviewed and approved for SBA lending. It’s maintained by the SBA and updated regularly.
How to Check If a Franchise Is Listed
Lenders check the Franchise Directory during underwriting. You can verify a franchise’s status by:
- Asking your SBA lender to confirm
- Requesting confirmation from the franchisor
- Contacting the SBA directly
If a franchise isn’t in the directory, it may still be eligible. The franchisor can submit their Franchise Disclosure Document (FDD) and franchise agreement to the SBA for review. This process typically takes 4-8 weeks. Common reasons for not being listed: new franchise system, updated FDD needing re-review, or failed previous affiliation review.
How Much Can You Borrow for a Franchise?
Maximum Loan Amount
The SBA 7(a) maximum is $5 million. For franchises, this typically covers: franchise fee, build-out and construction, equipment and fixtures, initial inventory, working capital, and real estate (if purchasing).
Typical Franchise Loan Sizes
| Franchise Type | Typical Total Investment | Typical SBA Loan |
|---|---|---|
| Home services | $50K – $200K | $45K – $180K |
| Quick service restaurant | $200K – $500K | $180K – $450K |
| Full service restaurant | $500K – $2M | $450K – $1.8M |
| Fitness/gym | $300K – $1M | $270K – $900K |
| Automotive services | $200K – $500K | $180K – $450K |
| Hotel/motel | $2M – $10M+ | $1.8M – $5M |
Equity Requirements
Standard SBA equity injection is 10% of total project cost. With seller financing on full standby (for existing franchise locations), you may qualify for 5% cash down per current SBA guidelines.
What SBA Loans Cover for Franchises
Covered Expenses
- Franchise fee: Initial fee to acquire franchise rights
- Build-out costs: Construction, renovation, tenant improvements
- Equipment: Kitchen equipment, vehicles, machinery
- Furniture and fixtures: FF&E for the location
- Signage: Required franchisor signage
- Initial inventory: Opening inventory requirements
- Working capital: 3-6 months operating expenses
- Real estate: Purchase or lease deposits
- Soft costs: Architectural, engineering, permits
Not Covered
- Ongoing royalty payments
- Marketing fund contributions
- Personal living expenses
- Franchise transfer fees to franchisor (in some cases)
The Franchise SBA Loan Process
Step 1: Select Your Franchise
Choose a franchise, review the FDD, and verify SBA eligibility through the Franchise Directory.
Step 2: Complete Franchisor Application
Most franchisors require their own approval process before you can sign a franchise agreement.
Step 3: Sign Franchise Agreement (or Execute LOI)
For new franchises, you’ll sign the franchise agreement. For existing location purchases, you’ll sign an LOI with the seller and get franchisor approval for the transfer.
Step 4: Prepare SBA Loan Application
Gather all required documents including the signed franchise agreement, FDD, and personal financials.
Step 5: Submit to SBA Lenders
Submit your application to multiple SBA lenders for term sheets. An experienced SBA broker can submit to 5-10 lenders simultaneously.
Step 6: Lender Underwriting
The lender verifies franchise eligibility, reviews your financials, and orders any required appraisals or valuations.
Step 7: SBA Authorization
Lender submits to SBA for authorization (or approves under PLP authority).
Step 8: Closing and Funding
Sign loan documents and receive funds to pay franchise fees, fund construction, and launch operations.
Run both processes simultaneously. Don’t wait for franchisor approval to start SBA financing. Most lenders can begin underwriting while franchisor approval is pending—this can save you 4-8 weeks.
Documentation Requirements for Franchise SBA Loans
Franchise-Specific Documents
- Franchise Disclosure Document (FDD): Complete, current version
- Signed Franchise Agreement: Fully executed
- Item 19 Financial Performance Representations: If available in FDD
- Franchisor contact information: For lender verification
- Site approval letter: From franchisor (if location-specific)
For Existing Franchise Purchases
- Purchase Agreement: Between you and seller
- Franchisor Transfer Approval: Formal approval of new ownership
- Seller’s Tax Returns: 3 years for the location
- Location Financial Statements: Profit and loss, balance sheet
Standard SBA Documents
- SBA Form 1919
- Personal Financial Statement
- Personal tax returns (3 years)
- Resume
- Business plan or operating narrative
- Source of equity injection documentation
Franchisor Approval Process
What Franchisors Evaluate
Franchisors have their own approval process, separate from SBA lending:
- Financial qualifications: Net worth, liquidity requirements
- Background check: Criminal, credit history
- Experience: Industry or business management experience
- Interview: Discovery day or meeting with franchise team
- Territory/location: Approval of specific territory or site
Timeline
Franchisor approval typically takes 4-8 weeks. For existing location transfers, it may take 2-4 weeks once you submit a complete application.
New Franchise vs. Existing Location
| Factor | New Franchise (Startup) | Existing Franchise (Resale) |
|---|---|---|
| Historical financials | None (rely on FDD Item 19) | Actual P&L for underwriting |
| Lender comfort | Relies on brand strength | Higher (proven cash flow) |
| Build-out time | 3-12 months before opening | Already operational |
| Working capital needed | Higher (ramp-up period) | Lower (existing cash flow) |
| Down payment | 10% standard | 5% possible with seller note |
Existing franchises are generally easier to finance because lenders can underwrite based on actual performance rather than projections. However, strong franchise brands with robust Item 19 data can finance new locations successfully.
Popular Franchise Categories
- Restaurant/Food Service: McDonald’s, Subway, Dunkin’, Chick-fil-A — strong SBA lending appetite for proven brands
- Home Services: Servpro, ServiceMaster, Mr. Rooter — lower startup costs, good for first-time franchisees
- Fitness: Planet Fitness, Orangetheory, Anytime Fitness — equipment-heavy, location dependent
- Automotive: Jiffy Lube, Midas, Maaco — strong recurring revenue models
- Senior Care: Home Instead, Comfort Keepers, BrightStar Care — low capital, growing demand
SBA loans are one of the best ways to finance a franchise—whether you’re launching a new location or buying an existing one. The key requirements are: franchise must be in the SBA Franchise Directory, you need 10% down (or 5% for resales with seller notes), and you’ll need franchisor approval alongside your SBA financing. Run both processes in parallel to minimize your timeline.
Frequently Asked Questions
Yes, if the franchise is listed in the SBA Franchise Directory or can be approved through the SBA’s franchise review process. Most major franchises are SBA-eligible.
Ask the franchisor directly or have your SBA lender verify through the SBA Franchise Directory. If not listed, the franchisor can submit their FDD for SBA review (takes 4-8 weeks).
Yes, and existing locations are often easier to finance because they have proven cash flow. You’ll need franchisor approval for the ownership transfer in addition to SBA financing.
Standard is 10% of total project cost. For existing franchise purchases with a seller note on full standby, you may qualify for 5% cash down.
Typically 60-90 days for existing locations, 90-120 days for new franchise builds (not including construction time). Running franchisor approval and SBA financing in parallel can save 4-8 weeks.
Not always, but it helps. Franchisors provide training, which mitigates the experience requirement somewhat. Lenders look favorably on any management or business ownership experience, even in unrelated fields.
