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Starting a franchise with SBA financing? Then you’ve probably heard the term post-close liquidity or reserves. But what does that actually mean—and how much do you really need in the bank after your loan closes?
In this vlog recap, I’m breaking down a key question I get asked all the time: How much money do you need in reserves for SBA loan approval on a franchise startup?
What Are Post-Close Reserves?
Let’s start with the basics. When banks review your SBA loan application, they look beyond your down payment. They want to see how much money you’ll still have left over after the deal closes.
This isn’t part of your startup costs—it’s your personal financial cushion.
Why does this matter? Because lenders want to ensure that if your business takes a few months to gain traction (which is normal), you aren’t forced to tap into business funds to pay for your personal expenses. Having reserves protects both you and the bank from financial stress early on.
The 10% Reserve Rule (And Why It’s a Big Deal)
Here’s the golden rule that most SBA lenders follow: You should have 10% of your total project cost in reserves after the loan closes.
Let’s break that down with an example:
- Total Franchise Startup Cost: $300,000
- Down Payment (Typically 10%): $30,000
- Recommended Reserves (Another 10%): $30,000
That means you’ll need $60,000 total in available liquid assets—half for the down payment, half as reserves.
Of course, there are some exceptions. Smaller lenders using SBA Express loans (for amounts under $150K–$200K) may be more flexible. But once you move into the $300K+ territory, 10% post-close liquidity is generally non-negotiable.
Why Banks Require Reserves
It’s not just about being conservative—banks want to know you can weather the early months of your new business without relying on cash flow that might not be there yet.
Even if your loan builds in working capital (and many do), banks still want assurance that you personally have reserves. This way, you're not using business funds to cover rent, groceries, or family expenses during ramp-up.
What Qualifies as Reserve Funds?
Lenders are typically flexible, as long as the money is accessible. Here are common types of assets that count as reserves:
- Checking or savings accounts
- Money market accounts
- Stocks or mutual funds
- Retirement accounts (depending on liquidity and penalties)
They’ll usually ask for recent statements to verify your balances, so make sure those are ready to go.
Plan Ahead: Don’t Let Reserves Delay Your Deal
A common mistake I see? People focus only on the down payment and forget about reserves.
But trust me—lack of post-close liquidity can kill your deal, especially with higher loan amounts. If you’re serious about SBA financing for your franchise, build your financial plan around both requirements.
Final Thoughts
SBA loans are one of the best ways to fund a franchise startup—but preparation is everything. If you're ready to take the next step, make sure you understand how your down payment and reserves factor into the equation.
Need help crunching the numbers? I’ve helped hundreds of clients navigate this exact scenario.
👉 Visit bookwithbeau.com to schedule a one-on-one strategy session.