SBA Loan for Franchising: 5 Steps to Secure Funding

With the dream of becoming a franchise owner slowly morphing into reality, you might be wondering: Wwhat kind of loan does the government offer, and can it truly help me establish my franchise venture? You can use an SBA loan for franchising, and it’s a great way to secure funding and get your business off the ground. Learn about the process.

1. Understand the Basics

The U.S. Small Business Administration (SBA) has been backing entrepreneurs to secure restaurant franchise financing for decades. It provides a variety of loan programs. SBA loans are similar to bank loans except while not lending the money directly, the SBA guarantees a portion of the loan amount, making them more attractive to lenders. SBA loans can also be easier for small businesses to get and often have better rates and terms than loans from a bank. Many reputable franchises are approved by the SBA and included in their official Franchise Directory. For franchise owners, the most popular choice often is the SBA 7(a) loan program.

2. Determine If Your Franchise is Eligible for an SBA Loan

Not every franchise is eligible. The franchise must be listed in the SBA’s Franchise Directory, which indicates that the business doesn’t violate any of the SBA’s affiliation rules. This step ensures that the loan is going to a truly small business rather than a larger enterprise disguising itself as one.

3. Know How to Identify Permissible Use of Your SBA Loan for Franchise Purchase

The good news is that the list is quite comprehensive. An SBA loan, among other things, offers you some flexibility. You can utilize the funds to:

  • Purchase land or equipment.
  • Acquire or renovate a building.
  • Cover your franchise fee and other franchise startup costs.
  • Maintain your working capital.
  • Refinance existing business debt under specific conditions.

This flexibility provides you with a robust foundation from whicht to establish and grow your franchise. However, there are restrictions. You can’t use the funds for:

  • Paying off owners or investors.
  • Reimbursing funds used for a business transition that doesn’t benefit the business.
  • Investments in buildings not primarily occupied by the borrower’s business.

These restrictions are in place to ensure that the funds directly benefit small businesses and contribute to their growth.

4. Determine the Loan Amount and Your Eligibility

For the SBA 7(a) loan program, qualified you can borrowers can seek up to $5 million. Bear in mind, the SBA guarantees up to 85% of loans of $150,000 or less and up to 75% of loans more than $150,000.

Eligibility hinges on several factors:

  • You must operate as a for-profit entity.
  • Your business should be based in the U.S.
  • You, as the owner, must have invested time or money into the business.
  • Your business must qualify as “small” based on SBA’s standards.
  • You must have sought and used personal assets before seeking financial aid.

5. Prepare and Submit Your Loan Application

Securing an SBA loan requires some diligence. Here’s a simplified breakdown:

  • Research lenders: Not every lender handles SBA loans, so find those who do and have a good track record.
  • Prepare your business plan: This should comprehensively outline your franchise’s operational, marketing, and financial projections.
  • Gather financial statements: This includes both your personal and business financial details.
  • Fill out the SBA loan application: This will require information about your business, your personal background, and details of your franchise agreement.
  • Approval: If your loan is approved, the funds can be used as outlined in your agreement.

Get the Most Out of Your Loan with Teriyaki Madness

An SBA loan can be a game-changer if you’re looking to step into the franchise world. As with all major business decisions, doing your homework and understanding the nuances will set you on the path to success. One of the benefits of choosing a brand like Teriyaki Madness is the backing of a team of experts to help walk you through the entire startup process. To learn more about what Teriyaki Madness has in store for its franchisees, download the franchise report.

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