Should I Get an SBA Loan for Franchise Financing?

Blog February 4, 2026 7 min to read

SBA Loans for franchise financing are a tried-and-true method for aspiring entrepreneurs. As one type of franchise loan, they were created to offer low-interest rates and no balloon payments for business owners with a guarantee from the Small Business Administration (SBA).

**Before you read, take note of the recent changes to SBA loans:

Effective March 1, 2026, SBA eligibility requires that all ownership interests in the Applicant or Borrower, Operating Company, and any Eligible Passive Company ** be held solely by U.S. citizens or U.S. nationals residing in the United States, its territories, or possessions.
In rare cases, an individual who is not a U.S. Citizen or U.S. National may be a guarantor only, with no ownership interest.
Green card holders (legal permanent residents) and foreign nationals are not permitted to hold any ownership interest, at any level.
This is a hard regulatory eligibility rule, not a lender preference or underwriting consideration.
The prior SBA exception allowing limited foreign or nonresident ownership (5% rule) has been rescinded.
No exceptions, waivers, or lender discretion apply.
For those that do not meet this ownership requirement, the file must not advance as SBA transaction.

** Even if a business entity is being formed with multiple individuals, every owner must be a U.S. citizen or U.S. national. There is no minimum ownership threshold. Even a very small ownership percentage held by an ineligible individual makes the entire structure SBA ineligible, and there are no workarounds.

What Is an SBA Loan for Franchises?

An SBA loan is a small-business loan offered by banks and online lenders, which the government partly guarantees. There are various SBA franchise loan options available, such as the SBA 7(a) loans and SBA CDC/504 loans, which offer benefits like lower down payments and longer repayment terms.

Here’s how it works. You apply for a Small Business Administration (SBA) loan through a lending institution like a bank or credit union. The lender applies to the SBA for a loan guarantee. If you default on your SBA loan, the government pays the lender the guaranteed amount. In turn, the Small Business Administration requires your unconditional personal guarantee that the loan will be paid. In fact, SBA loans for franchise financing usually require unlimited personal guarantees from anyone who owns more than 20% of the business. Keep in mind that any personal guarantee you make may be partially or fully collateralized.

A common misconception is that the Small Business Administration makes direct loans to entrepreneurs to kickstart their business(es). This is not the case. Instead, the SBA makes a guarantee to banks and lenders for the money they lend to small businesses.

SBA loans can alleviate the risk associated with lending money to business owners and entrepreneurs who may not qualify for traditional loans. They tend to have longer repayment terms than traditional bank loans.

Benefits of SBA loans for borrowers include:

Low-interest rates
Long repayment terms
The ability to be combined with other financing

What do I need to qualify for an SBA loan for franchise financing?

Strong personal credit (typically a credit score of 640 or above; exact minimums vary by lender and loan type)
Access to collateral
Solid income
Equity injection (often around 10% for startups/acquisitions, depending on the deal and lender/SBA rules)
Three years of applicable work experience

Check the SBA franchise directory to ensure your franchise is eligible for SBA financing.

About SBA Loans for Franchise Financing

The financing amounts range anywhere from $25k to $5 million, and there are several options, including the following:

The 7(a) Loan Program can be used for a wide range of purposes such as working capital, revolving funds, equipment purchasing, and more.
Export Assistance Loans: Includes Export Express, which can be used for any purpose that increases a company’s ability to export, such as marketing, travel, short-term lines of credit, and capital expenditures.
SBA Express Program: A part of the 7(a) loan program, and for businesses with financing needs up to $500k. This program can be used for a variety of business activities, and no collateral is required for loans up to $50k.
SBA Microloans: These are loans that are given in smaller increments, providing up to $50K in small business funding. You do not receive these loans directly from the SBA but rather from a local lender, which is typically a nonprofit organization. Uses for this loan include working capital, inventory, and equipment. However, you cannot use a microloan to pay existing debts or purchase real estate. Also, collateral may be required.
SBA CAPLines: Designed to meet the short-term working capital needs of a business. This type of financing is best for small businesses that sell their goods and/or services on credit. The loan amount is based on need, and the maximum amount given is $5M. For eligibility, applicants must qualify under the standard 7(a) requirements and must be able to produce collateral.
SBA 504 Program: Offers small businesses long-term, fixed-rate financing to acquire fixed assets for expansion or modernization. They are made available through Certified Development Companies (CDCs), which are the SBA’s community-based partners. The maximum loan amount provided is $5.5M, and the best part is that these loans have longer repayment periods than most.

Competitive Terms

Compared to personal loans, many SBA loans are a breeze. The turnaround time for a personal loan is within the same range as the SBA loans listed above. However, unlike most SBA loans, collateral is usually required for personal loans.

Approval Time

The average time to be approved for an SBA loan is anywhere from 45 to 90 days. However, in some cases, it can exceed that.

Required Documentation

Before applying for an SBA loan, make sure you have the following documents available and ready to present:

SBA Form 413, Personal Finance Statement
SBA Form 1919, Borrower Information
SBA Form 912, Statement of Personal History
Three years of federal personal tax returns
Management Resume
Personal ID
Business plan
Financial projections
Information on affiliated businesses

For an existing business, you will also need to provide the following in addition to the above:

Three years of federal business tax returns
Profit and loss balance sheet
Letter of intent or purchase agreement
Business financial statements, such as income statements, balance sheets, and cash flow projections

The Importance for Financing for Franchises

Financing is key for franchises because it covers the initial start up costs like franchise fees, equipment and working capital. Without financing it can be tough to get a franchise off the ground and long term success. Financing with franchise loans from the SBA also helps franchisees manage cash flow, invest in marketing and advertising and grow their business. Proper financing means franchise owners have the resources to operate and grow their franchise.

Why Choose Small Business Loans for Franchises

Franchise small business loans are a tailored financial solution for franchise owners. Unlike big, broad funding options, small business loans have flexible repayment terms and competitive rates so are an accessible and manageable option for entrepreneurs. Plus many lenders understand the franchise model and are more willing to lend based on the brand and business plan. Small business loans for franchises are a smart and efficient way to launch or grow your business while keeping your finances stable.

Looking for expert advice on applying for an SBA Loan? Our trusted financing partner’s team of experts can provide the resources and insights you need to make an informed financing decision.

Check out our podcast episode all about franchise financing to get a 30-minute crash course in what your options are!