Published on 2 Jun 2021 Time 5 min read Last update by 14 May 2024

Franchise SBA Loan Facts for 2024

Play Video
This article is based on the video featured above, originally recorded for Vetted Biz Youtube Channel.

Patrick: Today I want to talk a little bit about the franchise SBA loan, particularly for franchising. Many of you might know that there are a lot of different ways to finance a franchise investment. You can go to friends and family, you could tap into your savings, you can even roll over your retirement account to open up your franchise. However, In Vetted Biz, we think that an SBA loan, depending on your profile, of course, could be the best option to finance a franchise in the United States.

Is a SBA Franchise Loan the Best Way to Finance a Franchise?

Some of the positive aspects about the SBA loan program are that it’s backed by the federal government, and banks, and there’s 1000s of banks literally that do these loans. And we’ve reviewed over a million of which 100,000 plus went out to franchisees, there are a lot of capital providers with for the right franchise, you can definitely get funding financing. Now, even though that it’s may 2021. And things are looking brighter in terms of a COVID pandemic, there is SBA financing.

sba loan for franchise

SBA Loans by the numbers

If you’re looking to open up a new franchise, generally we’ve seen that terms are pretty favorable, where you can get an A franchise loan for a 10 year period. And essentially, it’s a 5% interest rate. And at the end of the 10 year term. There are different options to refinance. Depending on the performance of the business, too, you can take out another loan or open it up, take out another loan for a second or third location have the same franchise system or different franchise system. But we see that at a 5% interest rate. That’s pretty cheap capital, especially when you only have to put 30% down.

If you’re looking to open up a franchise that the total investment is $100,000, including a 30, year 40k, franchise fee, working capital equipment, the rent deposit, it’s $100,000. To start up from scratch, you only need $30,000 cash, and then you can get a loan for another $70,000 through an SBA approved lender. So a lot of large banks like like Chase, Wells Fargo, do hundreds, if not 1000s of SBA loans through the seven a program every year. And then if you find a franchise opportunity that you’re going to be buying, it’s already an existing location, it has financials from the past one to two years, you have tax returns from the franchise seller, you might be eligible for just 15% down.


An exemplary case

Imagine buying a franchise a million-dollar franchise, say for like Dunkin Donuts, where you only have to put $150,000 down, and you can get a loan of $850,000, which you have 10 years of pay off at a 5% interest rate. This is a way that business owners in the United States can get a pretty high return on investment when you look at the return on their cash investment. If you’re just investing $150,000 cash, and a million-dollar franchise that could be making $200,000$300,000 a year, that’s a very high return on your cash investment, even when you account for debt servicing, which shouldn’t be too high at a 5% interest rate. If you’re looking to really jack up your return, and increase the return on investment for your franchise, you should definitely look at doing an SBA loan.

Interest rates in 2021

As right now, may 2021. Interest rates are 5% or even lower, depending on the lender. So going back years, we were seeing 8%9% for many of the large banks, but now at 5% given the right franchise opportunity and we have a lot of data and vetted biz, where you can go through any franchise opportunity and see how many SBA loans have defaulted for that franchise. You can see how many franchisees paid the entire loan back to the SBA lender, you can see how many franchises are failing were, how many where they’re failing, how many franchises are opening, and you get in and talk directly to franchisees to see how satisfied they are with that franchise brand.

I definitely encourage you to explore the SBA loan if you’re looking to do a franchise investment, as opposed to rolling over your retirement savings account. And SBA depending on what city you’re in, the lender can’t go after your retirement savings that sacred and even if you defaulted on the SBA loan, they couldn’t go after that retirement funds. In terms of preserving capital, an SBA loan might be more prudent than doing a rollover of your retirement account.

And again, going to friends and family at the business. is going well, and they get their money back all is great. But do you really want to take that chance of burning a bridge with a family member or close friend, knowing that there are a lot of businesses that fail and you can de-risk it by choosing the right opportunity, but there’s still going to be a 510 15% chance that your business is going to close in a five to 10 year period, even if you choose the best franchise in your area?

We definitely think of Vetted Biz that goes in and SBA going with an SBA loan might be the right option. It just gonna depend a lot on your circumstances.


Access to unbiased franchise data.

Easy to access franchise data for everyone from first time franchise buyers to institutional investors buying whole franchise systems to everyone in between.