SBA Loans for Buying a Franchise
Financing a franchise purchase can feel daunting, especially for first-time buyers. The good news is that the Small Business Administration (SBA) makes it more attainable. Whether you want to buy an existing franchise, expand one, or open a new location, SBA loans are one of the most common ways buyers get the deal done. Here is how SBA lending works and how to use it to your advantage.
What SBA loans are and how they work
The SBA does not lend money directly. Instead, it guarantees loans made by approved lenders such as banks, credit unions, and online lenders. That guarantee lowers the lender’s risk, which makes it easier for buyers to get financing, sometimes even with less-than-perfect credit. The SBA typically guarantees up to 85% of a loan under $150,000 and up to 75% of larger loans, which encourages lenders to say yes to borrowers they might otherwise decline. Some smaller SBA loans may not even require collateral, and the funds can be used to buy a business, purchase equipment, expand, or open a franchise.
Eligibility and applying
To qualify, the business must be for-profit, operate in the U.S., and meet the SBA’s size standards for its industry. As the borrower, you will need to show the ability to repay, usually through personal and business financial statements. Preparation is everything: organized financials and a clear understanding of the target franchise’s numbers give you the best shot at approval.
Rates, terms, and timing
SBA rates are competitive and usually tied to the prime rate. Because these loans are long-term, often up to 10 years for a business acquisition, the rates tend to be more favorable than short-term commercial loans. Traditional processing runs about two to three months, though digital lending platforms have sped up approvals for many smaller loans. Start early and line up two or three lenders so financing does not become the bottleneck.
SBA 7(a) and 504 programs
The SBA 7(a) program is the most popular and flexible option for buying or expanding a business, and it is commonly used to acquire a franchise. The SBA 504 program offers long-term financing for major fixed assets like real estate and equipment. Each has its own requirements, so talk to an SBA-approved lender about which fits your purchase.
How a broker helps
Navigating both the SBA process and a franchise purchase is complex. A business broker knows the lending landscape, helps you evaluate the right franchise to buy, and keeps the financing and franchisor approval moving in parallel. You can browse current franchises for sale and learn how to buy a franchise with our help.
Frequently asked questions
Can I use an SBA loan to buy a franchise?
Yes. Many franchises are SBA-eligible, and the SBA 7(a) program is one of the most common ways buyers finance a franchise acquisition.
Do SBA loans require collateral?
Not always. Some smaller SBA loans may not require collateral, which helps buyers without significant assets. Larger loans are more likely to.
How long does SBA approval take?
Often about two to three months, though smaller loans can move faster through digital lenders. Applying early and working with multiple lenders helps avoid delays.
Ready to finance your franchise?
We help buyers line up financing and find the right opportunity. Learn how to buy a franchise with Franchise Sellers, or call 800-499-4280.