How to Use an SBA Loan for a Franchise Business

Starting a franchise can be an exciting adventure. Whether you’re opening your first location, renovating an older location or branching out to include multiple locations, it’s important to secure the right funding. Consider how an SBA loan can help you get the most out of your business.

First, financing new franchises can be a costly investment. Between the real estate, materials and equipment costs, you need a loan that has competitive interest rates, high loan terms and flexible payment options. Not only are these loans only available to small businesses, they’re often more competitive than alternative financing options.

Franchising fees can cost as much as $50,000. While some franchises open with out-of-pocket expenses, many require a loan in order to launch a successful location. Even if you have the finances to cover the fee, you might still struggle to keep enough working capital to respond to unexpected costs.

As a small business owner, it can be a challenge to secure a traditional business loan. Franchise owners who have low credit scores can still apply for an SBA loan. Whether you have little working capital, a short financial history or any other negative feature of your loan application, you’ll have an easier time receiving an SBA loan.

Unfortunately, there are still some franchises that are denied an SBA loan. A common mistake is to apply without any financial history or financial plan. Many loans are distributed to companies that lack a financial history, but they make up for it with comprehensive financial projections. You need to prove to your bank that you understand the risks involved with franchising and starting a business.

Once you receive a loan, you can’t simply use it just like cash. You’ll typically need to use your funds for a very specific set of predetermined costs. This will be covered in the application materials, so it shouldn’t come as a surprise. SBA doesn’t back all franchises, so be sure to check if your company qualifies.

Find out how you can receive an SBA loan in your area. You won’t go straight to SBA, but instead your loan will be disbursed through a loan provider, such as a bank or other financial institution. There are partnerships all across the nation in every state, so look for a local lender to discuss the exact stipulations of your SBA loan for your franchise. Get started today growing your business and becoming a successful franchising business owner.

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