SBA Loan for a Franchise: How & When to Apply

Often, people interested in starting their own business don’t have the necessary cash on hand to finance the venture. The U.S. Small Business Administration (SBA) can help. The SBA was established in 1953 to “aid, counsel, assist, and protect… the interests of small business concerns.” One of its primary functions is to provide access to capital for startups and businesses. While the SBA does not loan the money itself, it sets guidelines for loans and reduces lender risk by guaranteeing them. These SBA-backed loans make it easier for small businesses to get the funding they need, usually at more favorable terms than traditional loans.

As a potential franchise owner, you may be eligible for an SBA loan to buy a franchise. This guide will show you how to find out if you qualify, how to apply, and what to do if you’re turned down.

Securing an SBA Loan for a Franchise

First, you need to decide on the franchise you wish to buy and determine the exact amount of the initial investment required. Then, you can check to see if it’s eligible for an SBA loan for a franchise. Eligibility is based on several factors including a business’s size, its primary purpose and location, and the owner’s character and ability to repay. The SBA Franchise Directory, current through May 2023, contains a list of both eligible and ineligible franchises for loans.

Once you have signed the franchise agreement and paid the initial fee, it’s time to begin the process of finding the loan. SBA Lender Match can help you find a suitable lender. Remember, the SBA facilitates loans through approved lenders, not directly. The lender will help determine which type of SBA loan is best for you. Typically, franchisees opt for a 7(a) loan, which offers amounts between $500,000 and $5 million. This money can be used for purchasing or improving real estate or buildings, installing machinery or equipment, purchasing furniture, fixtures, and supplies, as well as working capital. If you need to borrow $500,000 or less, you can take out a 7(a) small loan. If you need less than $50,000, consider a microloan. These loans are a good option for borrowers with limited working capital and little credit history. Collateral is not required for microloans.

The next step in getting a loan to buy a franchise is to submit your application with the required documentation. Be prepared for additional queries or document requests. Working with an SBA preferred lender can expedite the approval process. The terms of the loan, whether you’ll need to pay a down payment, and the interest rate will vary depending on the loan type, but since you are working with the SBA, interest rates will be capped.

What to Do If You’re Turned Down for an SBA Loan for a Franchise

SBA loans are denied for many reasons, including poor credit scores, previous loan defaults, insufficient cash flow, or incomplete applications. The first thing to do after receiving a denial notice is to understand the reasons behind it. It might be something you can correct, such as improving your credit score. Once 90 days have passed, the SBA allows you to reapply.

While an SBA loan is a great financing option for franchises, they are not the only one. Here are a few others to consider:

• Traditional bank loans: If you have a strong credit history, traditional bank loans can be a viable option. They may offer competitive interest rates and terms.
• Franchisor financing: Some franchisors provide in-house financing options. These can be particularly tailored to the franchise's specific needs and may offer more flexible terms.
• Home equity loans: If you own a home, a home equity loan can provide the necessary funds.
• Investors: Find a partner to help you acquire and run the franchise, or a behind-the-scenes investor who will put money up front for a share in the profits.

Ways to Limit Loan Amounts and Reduce Risk

If you are having trouble getting a loan to buy a franchise, one way to limit the amount of money you need to borrow is to consider franchises with low startup costs. While some well-known franchise brands require an investment of anywhere from several hundred thousand to several million dollars, there are many types of franchises available for much less. One key to finding low-cost franchises is to look for those that don’t require a brick and mortar location. This list includes pet grooming, travel agencies, financial services, real estate brokers, photographers, and cleaning services to name just a few.

But don’t choose a franchise by price alone. You increase your chances of building a successful business by investing in a trusted, well-established brand. In the residential cleaning industry, you’d be wise to consider Two Maids.

The Benefits of Investing in Two Maids

In business since 2003, Two Maids is one of the most respected names in the cleaning industry. We’re known for our “pay for performance” model, where employees are paid based on the customer’s evaluation of how well we’ve done our job. This helps ensure employees do their best and customers are satisfied with the cleanliness of their homes.

To start a Two Maids franchise, you’ll need an initial investment of between $93,440 and $149,890. Because we don’t want the cost to be a hurdle for potential franchisees, we offer in-house financing up to $32,000 to cover the $19,950 franchise fee to qualified candidates – ask for details, as well as access to third-party sources to help you finance the other start-up expenses, including equipment, inventory, accounts receivable, and payroll.

We can also show you how you can pay for your franchise using your 401(k) without incurring penalties or taxes. And, if you’re a veteran, you may qualify for a 15% discount off the initial franchise fee and territory fee.

Get Started with Two Maids Today

If you have additional questions about getting a loan to buy a franchise, including how to qualify for an SBA loan for a franchise, Two Maids is here to help. Request more information and a member of our franchise development team will explain the process and help you get started on the road to franchise ownership.