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August 19, 2022   /   K. Lee Graham

Franchises must be listed on the SBA Franchise Directory to be eligible for an SBA loan. Here’s how to submit yours for consideration.

Plan on buying a franchise using an SBA loan? You’ll first need to make sure the business is listed on the SBA Franchise Directory. The SBA requires franchises to be included on this list of businesses in order to be eligible for their entrepreneur-friendly loan programs.

Understanding SBA Franchise Directory Requirements

Many new owners choose to buy a franchise with SBA loans because of the unique loan benefits. SBA franchise financing opens the door to affordable capital with longer terms and flexibility in how the funds can be used.

However, not every franchise makes the cut for the small business loan programs.

The SBA wants to support businesses that put revenue back in local entrepreneurs’ hands. Franchises may seem like an unusual candidate for their loan programs, but they may still be eligible.

The SBA assesses a business’s loan eligibility based on how much autonomy they give the franchisee.  Franchise agreements must let the franchisee operate as independent business owners within the framework of the franchise rules to qualify for SBA franchise loans.

If they’re deemed eligible, the franchise is added to the official SBA Franchise Directory. Entrepreneurs who own a franchise on the Directory can then apply for financing through SBA loan programs.

Step 1: Check to see if the franchise is already listed.

Before submitting a franchise, check to make sure it hasn’t already been approved by the Small Business Administration. If your franchise name is on this list, it is eligible for SBA financing. The Directory will also list if the franchise will require additional documentation or limitations on SBA loan options based on the agreement type.

You can check the SBA Franchise Directory Here. Simply search the franchise name that you’re interested in financing with SBA loans. If it’s on the list, it’s eligible. You can skip the following steps and proceed with your SBA franchise financing application.

Step 2: Gather required documents.

The SBA lists out a few sets of documents they need to determine a franchise’s financing eligibility:

  • Completed copies of the franchise/license/dealer/jobber or similar agreement for the brand
  • The Franchise Disclosure Document
  • Any other documents that the SBA would need to sign for the franchise

Existing franchise owners that need an SBA loan for working capital or specific project uses probably already have access to these documents. If you are buying a franchise, work with the seller and the franchise to find these documents.

Step 3: Send to the SBA

Once you’ve gathered your documents, it’s time to send them to the SBA for review. Email the documents to [email protected] with your request for inclusion in the Directory.

If you want to get ahead with the remainder of your application while their decision is pending, continue assembling the remainder of your application. You can learn all about the process for securing an SBA loan to buy a franchise with our online Franchise Financing Guide.

Step 4: Receive SBA Decision

The Directory is updated weekly by the SBA, but it can take up to three months to process any franchise submissions. Potential franchisees are welcome to submit at any time, but keep the SBA’s time frame in mind. Prioritize submitting to the Directory early on if your SBA loan is time sensitive.

Step 5: Apply for Financing

A franchise that’s listed in the Directory is eligible for financing, fully or provisionally. Occasionally, certain franchise agreements will require additional documentation to secure an SBA loan. The SBA will include any of these stipulations in the Directory.  Work with your lender to understand any additional provisions your franchise needs to meet.

Once your franchise is on the Directory, you’re free to move forward with your SBA loan. Get started with your SBA franchise loan here.

Why Use SBA Loans for Franchise Financing

Franchises can be expensive from the onset. Buying a franchise typically requires a franchise fee, the purchase or lease of property, inventory or equipment purchases, staffing expenses, and marketing costs. Once you own the franchise, royalty fees and miscellaneous expenses kick in.

An SBA loan gives entrepreneurs a few key advantages:

  • The flexibility to use loan proceeds the way they need to. SBA loans remove some of the limits on eligible uses of the loans to help support more entrepreneurs’ diverse needs.
  • Longer annuities. SBA loans typically come with 10 or 25 year terms, longer than most conventional loans. Longer terms spread out payments, so entrepreneurs may operate with greater cash flows month to month.
  • Interest rates set by the SBA. The Small Business Administration sets a baseline interest rate for SBA loan programs to keep the loans competitive in the current economic climate.

Have questions about the best option for financing your franchise? Get in touch with a lender using the form below:

Ask an SBA Lender:

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