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Expanding a franchise into multiple territories can be a powerful strategy for rapid market growth and long-term profitability. But when it comes to funding this expansion—especially for a multi-territory home service franchise—understanding how SBA loans work is critical.
If you’re an entrepreneur eyeing five or more territories, you’ll want to read this carefully before making your move.
Why Multi-Territory Franchise Ownership is Attractive
Many investors are gravitating toward semi-absentee franchise models, such as painting, cleaning, or other home service businesses. These models often allow you to hire a regional manager or director to oversee day-to-day operations, giving you more freedom while scaling faster.
For example, a painting franchise might sell five territories to one owner with the intention of opening the first location immediately, then rolling out additional ones over time—often with three territories launching in the first year.
What SBA Loans Will (and Won’t) Cover
The SBA 7(a) loan program is a common choice for franchise financing, but there’s an important rule to understand:
SBA lenders will typically finance only the territories you plan to open in the first year.
That means if you purchase five territories but only plan to open three in Year 1, the SBA loan will usually cover:
- The franchise fees for those three territories
- The startup costs tied to opening them
The two additional territories planned for later years won’t be financed under the initial loan.
Planning Your Financing Strategy
Because of this limitation, your territory rollout schedule becomes crucial in your loan application. You’ll need to decide whether to:
- Self-fund the additional territories until they open
- Use future SBA expansion financing after Year 1
- Rely on cash flow from the initial locations to cover expansion costs
Can You Get Another SBA Loan Later?
Yes—if you execute well and the first-year operations show solid results. Here’s what lenders generally want to see:
- At least one year of financials (though some require two years)
- Positive cash flow and growth potential
- Updated business projections for the new territories
Some lenders will finance up to 100% of expansion costs after two years in business, but there are exceptions. In certain cases, Beau Eckstein has helped clients secure expansion funding with just one year of tax returns.
Best Practices for Multi-Territory Franchise Financing
- Map out your opening schedule before committing to territory purchases.
- Discuss SBA loan structure with an experienced franchise financing expert early on.
- Maintain clean financial records from day one to improve your expansion financing odds.
- Attend educational events to learn more about SBA loans, tax strategies, and growth planning.
Get Expert Guidance Before You Commit
Financing a multi-territory franchise is not a one-size-fits-all process. The key is understanding lender expectations upfront so you can align your rollout strategy with your funding options.
If you have questions about SBA financing for multi-territory franchises—or any franchise funding scenario—schedule a free consultation at bookwithbeau.com.