Last update:
The idea of owning a franchise attracts a lot of new small business owners. There are inherent benefits that they can take advantage of. The brand value is already there, customers know about the products and the demand exists. Buying a franchise business can thus enable new entrepreneurs to hit the ground running. According to the US Census Bureau, 10.5% of all businesses in the country are franchises and they account for almost 3% of the national GDP. The entire sector comprises over 780,000 businesses.
Even though there’s a great opportunity for growth in this industry, the barrier to entry remains quite high which is one of the reasons why new business owners can struggle to obtain small business franchise loans. Banks are typically wary about lending to those who have no prior experience running franchise businesses successfully. The SBA franchise loans are a crucial lifeline for all those business owners who are unable to obtain conventional small business franchise loans.
Benefits of owning a small business franchise
Buying a franchise is an attractive idea for new business owners since they receive business assistance from the franchisor. This could be anything from an entirely turnkey operation complete with equipment and supplies to in-depth guidance on successfully running the business.
Furthermore, the brand is already well recognized and customers rely on the products. This lowers the failure rate for business owners as they essentially become part of a successful brand that pulls in a steady stream of customers.
How to get a loan for a franchise
There’s no shortage of banks and other lenders that are willing to provide funding for a franchise, however, the process is often quite tedious and there’s a higher chance that you might be turned out, particularly if you don’t have prior experience in the industry. Even if you do get approved, the franchise loan requirements would probably be untenable.
That’s what makes SBA loans for franchises such an attractive option. Since these loans are guaranteed by the Small Business Administration, it’s possible for business owners who even have low credit scores and limited credit history to get a franchise bank loan. The banks, credit unions and other lenders are happy to sanction the loans in this case as a big chunk of it is guaranteed by the government. You can even get an SBA loan to buy an existing business franchise.
SBA Franchise Loans
Both new and existing business owners can take advantage of the SBA franchise loans. The Small Business Administration has partnerships with lenders in all 50 states, thereby providing borrowers with a lot of options to choose from once they’ve decided to obtain a franchise bank loan.
This is the preferred option for most business owners as the franchise loan interest rates offered on the SBA programs tend to be considerably lower than those for conventional bank loans. This makes it possible for business owners to get the financing they need at low-interest rates with long repayment terms, thus providing them with a lot of leeway to get their business off the ground.
Given that franchise fee for most businesses can cost upwards of $50,000, the SBA 7(a) and 504 loans are the best SBA franchise loan options.
SBA 7(a) loan for franchises
The SBA 7(a) loan is essentially the most suitable option for a franchise. Business owners can obtain up to $5 million in funding that needs to be repaid in 10 – 25 years. The interest rates tend to be lower than regular franchise loan interest rates, usually in the 4.5 – 5.5% range but it may vary depending on the lender, the amount required, and other conditions.
You can use the SBA 7(a) loan to cover initial franchise fees, acquisition of equipment, furniture and fixtures, inventory, working capital and other startup costs. The funds can also be used to acquire land upon which to construct the franchise or to acquire existing franchises.
Almost all of the business expenses that you might have can be covered with the SBA 7(a) loan. There is one important exception to keep in mind. Any ongoing franchise or royalty fees can’t be paid through the SBA 7(a) funds.
The list below includes the rest of our best SBA approved lenders for small business franchise loans:
| Rank | Bank | Bank Name / Franchise Name | # of Loans | Avg Loan | Avg Rate | Avg Term |
|---|---|---|---|---|---|---|
| 1 | Stearns Bank | Stearns Bank | 466 | $248,002 | 6.8% | 122 |
| Supercuts | 19 | $120,068 | 6.8% | 109 | ||
| Fedex Ground | 11 | $469,100 | 6.9% | 121 | ||
| Club Pilates | 11 | $148,891 | 6.7% | 123 | ||
| ILOVEKICKBOXING.COM | 11 | $198,609 | 6.9% | 123 | ||
| 2 | Wells Fargo | Wells Fargo | 336 | $543,711 | 6.2% | 137 |
| Anytime Fitness | 32 | $479,025 | 6.4% | 117 | ||
| Jimmy John'S | 15 | $549,820 | 6.2% | 150 | ||
| Orange Theory Fitness | 13 | $608,608 | 6.2% | 134 | ||
| The Goddard School | 10 | $1,484,420 | 5.3% | 206 | ||
| 3 | The Huntington National Bank | Huntington National | 244 | $346,845 | 6.4% | 114 |
| Subway | 7 | $82,857 | 6.0% | 81 | ||
| Anytime Fitness | 6 | $209,617 | 6.3% | 92 | ||
| X-Golf | 6 | $283,183 | 7.0% | 102 | ||
| Ace Hardware | 5 | $904,000 | 6.3% | 138 | ||
| 4 | Celtic Bank | Celtic Bank | 223 | $360,454 | 6.6% | 137 |
| Experimac | 14 | $150,000 | 6.6% | 120 | ||
| Mr. Appliance | 6 | $195,900 | 6.8% | 120 | ||
| Patrice & Associates | 6 | $129,167 | 6.6% | 120 | ||
| Tutor Doctor | 5 | $140,000 | 6.6% | 120 | ||
| 5 | Spirit of Texas Bank | Spirit of Texas Bank | 197 | $346,613 | 6.4% | 125 |
| European Wax Center | 32 | $380,631 | 6.4% | 119 | ||
| Sport Clips | 31 | $223,226 | 6.4% | 119 | ||
| Club Pilates | 20 | $236,770 | 6.5% | 120 | ||
| Amazing Lash Studio | 13 | $370,738 | 6.4% | 120 | ||
| 6 | JPMorgan Chase Bank | JPMorgan Chase Bank | 141 | $342,466 | 6.3% | 105 |
| Jimmy John'S | 5 | $417,340 | 4.7% | 115 | ||
| Orange Theory Fitness | 4 | $337,500 | 5.5% | 123 | ||
| Fedex Ground | 4 | $568,575 | 5.8% | 112 | ||
| 7 | United Midwest Savings Bank | United Midwest Savings Bank | 138 | $260,851 | 6.9% | 129 |
| Signarama | 9 | $150,000 | 6.9% | 120 | ||
| Five Star Painting | 7 | $123,333 | 7.0% | 120 | ||
| Tutor Doctor | 4 | $145,000 | 7.0% | 120 | ||
| 8 | U.S. Bank | U.S. Bank | 86 | $396,817 | 6.7% | 125 |
| Anytime Fitness | 5 | $269,800 | 6.6% | 120 | ||
| The Ups Store | 4 | $144,475 | 6.4% | 120 | ||
| MASSAGE ENVY | 4 | $313,725 | 6.3% | 120 | ||
| 9 | TD Bank | TD Bank | 81 | $414,024 | 8.0% | 106 |
| The Ups Store | 5 | $90,200 | 5.2% | 113 | ||
| Subway | 4 | $255,000 | 7.4% | 123 | ||
| 10 | Radius Bank | Radius Bank | 79 | $679,908 | 6.7% | 132 |
| Orange Theory Fitness | 19 | $787,774 | 6.6% | 124 | ||
| Massage Envy | 6 | $1,069,383 | 6.5% | 117 | ||
| 11 | M&T | M&T | 69 | $275,034 | 6.9% | 94 |
| Ilovekickboxing.Com | 3 | $138,333 | 6.5% | 94 | ||
| Kiddie Academy | 3 | $496,550 | 6.4% | 90 | ||
| 12 | Byline Bank | Byline Bank | 64 | $932,029 | 6.7% | 162 |
| Dickey'S Barbecue Pit | 11 | $428,054 | 6.7% | 123 | ||
| 13 | Newtek Small Business Finance | Newtek Small Business | 57 | $619,923 | 6.8% | 150 |
| True Value Hardware | 4 | $500,000 | 6.6% | 252 | ||
| 14 | United Community Bank | United Community Bank | 56 | $747,255 | 6.5% | 147 |
| Ilovekickboxing.Com | 5 | $287,800 | 6.7% | 125 | ||
| 15 | KeyBank | KeyBank | 53 | $649,745 | 6.4% | 140 |
| Subway | 4 | $128,750 | 6.8% | 94 | ||
| 16 | Live Oak | Live Oak | 48 | $2,100,943 | 6.2% | 206 |
| Ameriprise Financial | 23 | $474,091 | 6.6% | 120 | ||
| 17 | Compass Bank | Compass Bank | 45 | $978,345 | 6.0% | 150 |
| The Goddard School | 6 | $3,165,833 | 5.0% | 310 | ||
| 18 | BankUnited | BankUnited | 43 | $1,640,441 | 6.2% | 231 |
| Best Western Inn | 5 | $2,351,800 | 6.0% | 300 | ||
| 19 | NOA Bank | NOA Bank | 41 | $1,301,517 | 5.9% | 259 |
| QUALITY INN/QUALITY SUITES, HO | 5 | $1,440,000 | 6.0% | 300 | ||
| 20 | Bank of George | Bank of George | 41 | $2,015,160 | 6.1% | 300 |
| Quality Inn/Quality Suites, Ho | 10 | $2,122,700 | 5.4% | 300 | ||
| Super 8 | 8 | $1,412,000 | 5.9% | 300 | ||
| 21 | SunTrust Bank | SunTrust Bank | 39 | $794,115 | 6.2% | 137 |
| Allegra Network | 3 | $427,000 | 6.1% | 108 | ||
| 22 | First Home Bank | First Home Bank | 39 | $236,061 | 6.8% | 120 |
| Party Princess Productions | 2 | $904,000 | 6.8% | 120 | ||
| 23 | PNC Bank | PNC Bank | 38 | $194,325 | 6.7% | 91 |
| CycleBar | 4 | $400,250 | 6.8% | 96 | ||
| 24 | Citizens Bank | Citizens Bank | 36 | $959,238 | 6.4% | 171 |
| Marco'S Pizza | 5 | $326,550 | 6.6% | 124 | ||
| 25 | The Bancorp Bank | The Bancorp Bank | 36 | $635,116 | 6.5% | 145 |
| Fantastic Sams | 15 | $210,307 | 6.6% | 136 |