Podcast: Download (Duration: 3:18 — 4.7MB)
Franchising is one of the most powerful ways to achieve business ownership—but many aspiring entrepreneurs stop before they start because they think they need a massive amount of upfront capital.
The truth? You can buy a franchise with little to no money down using creative financing strategies and SBA loans. Here’s exactly how it’s done.
💼 Why Franchising Is More Accessible Than You Think
In today’s lending landscape, financing a franchise—especially with SBA 7(a) loans—is more achievable than ever. These loans are government-backed, reducing risk for lenders and opening doors for borrowers with strong business plans but limited capital.
For qualified buyers, up to 90% of total project costs can be financed, including the franchise fee, working capital, and even equipment. That means, on a $1,000,000 franchise purchase, you could receive $900,000 in SBA funding.
The remaining 10%? There are ways to creatively structure that portion, too.
💡 Creative Ways to Cover the 10% Equity Injection
Let’s talk about that 10% equity injection—what lenders want you to contribute to show “skin in the game.” This requirement often stops people in their tracks, but you don’t have to fund it from your own pocket.
Here are some proven ways to cover that:
🤝 Use an Investor Partner
Bring on an investor who owns less than 20% of the business. This way, they don’t trigger SBA personal guarantee requirements, and their contribution can count toward your equity injection.
Example: Need $100,000 down? Have two investor partners each contribute $50,000 in exchange for small equity shares. The SBA and lenders are fine with this arrangement, as long as it's properly structured.
📝 Seller Equity or Standby Notes
In some cases, the seller can leave some of their equity in the business via a seller note on standby. Though most banks want to see at least 2.5% to 5% from the buyer, the rest can come from the seller, structured according to SBA rules.
🏦 What Banks Actually Look For
Even though SBA guidelines allow for flexible structures, banks often apply their own lending standards—known as “overlays.” Most lenders want to see:
- 2.5% to 5% personal contribution
- Post-closing liquidity (cash reserves for at least a few months)
- Solid deal structure that passes their risk analysis
But here's the key: if the business’s cash flow covers the new loan payment, and you've structured the equity creatively, banks are very open to funding.
📈 Real-World Example of Buying a Business with $0 Down
In the video, a buyer found a business with real estate attached. He had no available capital because he’d just bought another property. Two people—his wife and a friend—put up $50K each, covering the required $100K equity. The buyer didn’t put in a dime but signed the personal guarantee (since he owned more than 20%).
It was a win-win. The investor partners got equity, the buyer got ownership, and the bank funded the rest. This is not a one-off scenario—it's repeatable with the right guidance.