SBA franchise loans: how to finance a franchise

What is an SBA franchise loan?

An SBA franchise loan is SBA financing used to open or buy a franchise location. It isn’t a separate program: most franchise loans are SBA 7(a) loans, and SBA 504 loans can finance a franchise’s real estate or major equipment.

A franchise loan can pay for:

• The initial franchise fee
• Build-out and leasehold improvements
• Equipment, signage, furniture and fixtures
• Opening inventory and working capital while the business ramps up
• Buying an existing franchise location
• The land and building the franchise operates from

7(a) loans go up to $5 million. Working capital and most equipment are repaid over up to 10 years, and real estate over up to 25 years. When one loan covers several uses, the lender blends the terms into one.

Does a franchise have to be on the SBA Franchise Directory?

Yes. The brand must be listed in the SBA Franchise Directory before an SBA lender can finance one of its locations. Check the directory before you sign a franchise agreement or pay a fee.

Definition

SBA Franchise Directory:

The SBA’s public list of franchise brands whose franchise relationship meets its eligibility rules for SBA financing. A listing isn’t an endorsement of the brand or a prediction of how its locations perform.

The rules around the directory have changed recently:

• The SBA reinstated the directory in 2025, so lenders once again rely on it to confirm a brand is eligible.
• A Franchisor Certification replaced the old SBA addendum. Instead of adding an SBA addendum to each franchise agreement, the franchisor signs a certification with the SBA.
• In 2026, franchisors had to submit that certification to stay listed.

If your brand isn’t listed, ask the franchisor whether it has submitted its certification. Until the brand is listed, an SBA lender can’t make the loan.

How much down payment do you need for a franchise?

It depends on whether you’re opening a new unit or buying an existing one:

Topic	New franchise unit	Franchise resale
How the SBA treats it	A start-up, if you’re a new business	A change of ownership (business acquisition)
Minimum equity	10% of the total project cost	10%; a seller note on full standby can cover part of it
What lenders underwrite	Your projections, the brand’s track record and your experience	The location’s financial history and your experience
Brand listed in the SBA Franchise Directory	Required	Required
Full rules	SBA startup loans	Buying a business with an SBA loan

Total project cost includes the franchise fee, build-out, equipment, opening inventory and working capital, so the equity you need grows with the whole budget, not just the loan. Lenders and franchisors may ask for more than the SBA minimum, especially from a first-time owner or for a newer brand.

Money you’ve already spent on the project, such as a franchise fee you’ve paid, can often count toward your equity if you can document it. Confirm this with your lender before you rely on it.

If you already own units of the brand, lenders also look at how your existing locations perform, and the equity rules depend on how the new unit is set up.

What do lenders look for in a franchise loan?

Lenders underwrite the brand, the location and you. Expect them to look at:

1. The brand’s track record. How long it has franchised, how many units are open, how many have closed or changed hands, and how SBA loans to the brand have performed.
2. Unit economics. What a typical location earns compared with its costs, using the financial performance information in the franchise disclosure document where the brand provides it.
3. The franchise disclosure document (FDD). Lenders review the fees, territory rights, litigation history and unit turnover the franchisor discloses.
4. Your experience. Management or industry experience, or a strong team, plus the franchisor’s training and support.
5. The site. The location, the lease terms and a realistic build-out budget.
6. Your projections and equity. For a new unit, projections have to show the business can cover its debt, and you’ll need to document where your equity comes from.

Can you use an SBA 504 loan for a franchise?

Yes, for the fixed assets. If your franchise will own its building, such as a restaurant on its own lot or a hotel, a 504 loan can finance the land, the building and long-lived equipment at a fixed rate. A 7(a) loan can then cover the franchise fee, working capital and other costs a 504 can’t. Since July 4, 2026, a business can combine the two for up to $10 million in total.

Hotels and other special-purpose properties often need a larger contribution under 504. See SBA commercial real estate loans for the occupancy and down payment rules, and our pages on restaurant loans and hotel loans.

Who qualifies for an SBA franchise loan?

Beyond the brand’s directory listing, you and the business need to meet the standard SBA rules:

• The business operates for profit in the United States and meets the SBA’s size standards.
• Since March 1, 2026, all owners must be U.S. citizens or nationals.
• Owners of 20% or more personally guarantee the loan.
• The business can repay from cash flow, based on historical results or, for a new unit, projections.

The SBA doesn’t set a minimum credit score; each lender sets its own standards. Many franchisors also set their own net worth and cash requirements for new franchisees.

How do you find the right lender for a franchise loan?

Some SBA lenders finance franchise locations regularly and know specific brands well; others rarely do. A lender that already knows your brand understands its unit economics and FDD, which usually means fewer surprises in underwriting.

SBA Loan Connect ranks lenders using the SBA’s public loan records, so you can see which lenders actually fund franchise businesses like yours before you apply. Partner lenders are labeled. See how we rank lenders.