Buying an established business franchise comes with numerous benefits, including built-in name recognition and ongoing training. Even so, it requires extensive upfront funding just like any other type of business.

If you have not done so already, we highly recommend that you consider applying for a loan through the Small Business Administration. SBA loans typically come with lower interest rates and better repayment terms than a standard bank loan. This is due to the partnership the SBA has formed with thousands of banks across the country to repay a large percentage of the loan in the event the small business owner cannot do so.

How Do SBA Loans for Franchises Work?

The most important thing to understand about SBA loans is that the organization only provides them to small business owners who have experienced difficulty obtaining other sources of financing. Your inability to obtain a bank loan may have stemmed from any of the following:

Past credit problems
Low working capital balance
Inconsistent cash flow
Inability to meet down payment requirements
Have been in business for less than two years

Most SBA loans require a minimal down payment as well as minimal requirements for the amount of capital your company most possess. Since the SBA is not the lender but the backer of small business loans, the exact terms vary from one lender to the next.

The SBA looks for reliable financial reporting before it will grant its backing on a loan. This is true even if your small business does not have much of a financial history because both the lender and the SBA must feel confident that your business will become financially viable sooner rather than later.

Typically, SBA loans for new franchise owners are less than what new business owners can apply for and receive. If you feel that you need more funding than the SBA can provide with a franchise loan, you may wish to apply for its microloan instead.

Interested in exploring SBA loans along with other forms of small business lending? Please contact Third Bay Capital to request an appointment or additional information.