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If you're looking to buy or start a franchise but don't have hundreds of thousands in the bank, you're not alone. The good news? You don’t need to. The SBA 7(a) loan is one of the most powerful tools available for aspiring franchise owners — and it’s more accessible than you think.
In this post, we’ll break down exactly how the SBA 7(a) loan works, what makes it ideal for funding franchises, and how you can qualify to secure the capital you need.
What Is an SBA 7(a) Loan?
The SBA 7(a) loan is a government-backed loan that helps entrepreneurs finance a wide range of business needs — from real estate and equipment to full business acquisitions and startups. The standout feature? It allows you to qualify based on projected earnings, not current revenue.
That’s why it’s a go-to option for funding franchise startups and resales.
Why Franchises Are Easier to Finance
Banks love franchises because they come with proven business models. Unlike independent startups, franchises offer data-backed performance, making them less risky for lenders.
Most SBA-approved lenders are willing to finance between 70% to 90% of a franchise’s total cost. Smaller franchise deals (under $300,000) are more likely to be approved at 90% financing. Larger deals usually hover around 80%.
What You’ll Need to Qualify
Getting approved for an SBA 7(a) loan isn’t as hard as people think — especially when financing a franchise. Here are the basics most lenders require:
- Credit Score: Minimum of 680
- Outside Income: Enough to cover your personal living expenses
- Down Payment: Typically 10–20% of the total loan amount
- Financial Documents: Three years of personal tax returns, a business plan, income projections
- Franchise Agreement: Required to show business legitimacy
- Resume: Demonstrates relevant business or managerial experience
You’ll also need to show reserves after your down payment to make sure you’re not running on empty.
The Franchise Itself Matters
Even if you’re a strong borrower, not all franchises qualify for SBA funding. Some aren’t listed in the SBA Franchise Directory, while others may only be approved by specific lenders.
When evaluating a franchise, lenders often look at:
- The number of operating units
- Historical performance
- Whether the brand appears on their internal or SBA-approved list
If your chosen franchise isn’t on a lender’s list, it doesn’t mean you’re out of luck — but it may require extra due diligence.
Common Pitfalls to Avoid
While the SBA 7(a) program is incredibly flexible, here are a few things to watch out for:
- Low Business Valuations: If you're buying a resale, the loan amount is based on a third-party valuation. If that valuation is lower than the asking price, the seller may have to drop their price or the deal may fall through.
- Risky Industries: Sectors like restaurants may require prior experience or additional scrutiny.
- Real Estate Issues: If the deal includes property, environmental reports and appraisals are often required.
- Ineligible Backgrounds: Past defaults on government loans or crimes like bank fraud can disqualify you.
Why the SBA 7(a) Loan Is the Best Franchise Funding Option
Let’s be real — where else can you launch a proven business model with only 10% down and no existing revenue? The SBA 7(a) loan is widely considered the best financing product for small business owners and franchisees.
And it’s not just for U.S. citizens — permanent residents may also qualify, opening the door to even more aspiring entrepreneurs.