These 2 SBA Loans Can Be the Best Way to Finance Your Franchise

Buying a franchise can be the balance between traditional employment and the unchartered territory of entrepreneurship. As a franchisee, you have access to resources, a sound business model, a recognized brand and some stability. Even still, you will be owning your own business and required to invest the capital and labor needed to keep the doors open. While many financing options exist, SBA loans are the most advantageous form of franchise financing.


The U.S. Small Business Administration sponsors these loan, as they are committed to offering Americans the tools they need to start and operate a small business. The loan programs work in conjunction with intermediary lenders, like a bank, to disperse the loan. These loans are then backed by government funds, with SBA guaranteeing the lender a majority of their funds returned in the event the borrower defaults on the loan.


These SBA loans are highly desired given their low single digit interest rates, their high capital limits which can extend into the millions and their decades long repayment terms. Because of their popularity, there is a lot of competition for approval, and only the most eligible of business owners ever see funding.


There are two types of loans which may be right for your franchise. You can apply for a SBA 7(a) loan or an SBA CDC/504 Loan. An SBA 504 is most appropriate when you need to purchase equipment that has life value of at least ten years or more, or you need the funds to purchase real estate to house your business.


An SBA 7(a) loan can be used to make property improvements, fund start-up costs, purchase inventory and equipment or be used for working capital. This flexibility is what makes these most desirable for many applicants. The only thing it can’t pay for are the royalty fees to the parent company. An SBA 504 is used for real estate and heavy equipment purchases, but funds can also be used for soft costs associated with a major construction project.


The terms of the loans and fees associated with the process will vary by need. A standard SBA 7(a) loan can be upwards of five million dollars with terms ranging from seven to 25 years for repayment. SBA 504 loans will max out around five million with terms between 10-25 years.


If your franchise needs funding, take a closer look at how SBA loans can help!

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