Typical Loan Terms and Conditions of SBA Loans to Finance Your Franchise

The United States Small Business Administration provides loans for those companies whose average (last 3 years of operation) annual revenue is at or below $6 million. This allows most franchises to be considered for a SBA loan.

The average loan terms and conditions of an SBA loan consists of:

• Loan total: $50,000 to $4,000,000
• Franchisee contribution: 15% to 30% of total costs
• 7 to 10 year terms (up to 25 years with real estate purchase)
• No prepayment penalties on loans with terms under 15 years
• Prepayment penalties for loans 15 years and above are 5% year 1, 3% year 2, and 1% year 3

Collateral typically consists of:

• Personal residence might need to be pledged
• First lien on all business assets
• Personal guaranty of all those owning 20% or more
• Generally there is no minimum loan-to-value requirements for good franchise concepts
• General management experiences tends to be required
• Owner-operators only – no “investment” businesses
• SBA Guaranty fee of 1.7% to 2.6% of total loan amount
• Lenders might charge a loan fee no greater than $1,000
• Reimburse lender for closing costs

Where Can You Get A SBA Loan to Finance Your Franchise?

If the above terms and conditions are appealing to you, then you might be wondering where to start in obtaining a SBA loan so you can start financing your franchise today. You should contact your franchisor because many franchises have established financing programs with SBA lenders. If they do not already have a financing program with the SBA lender, they might know of good lenders they have worked with in the past.