SBA franchise loans

Few people pay for a franchise entirely in cash. The typical well-known brand here costs $355,700 or more to open at the low end of its estimate, and the money has to cover the franchise fee, the build-out, equipment, opening inventory and enough working capital to get through the first months. Most owners combine their own savings with a loan, and for a new business with no track record the most common loan is one backed by the U.S. Small Business Administration.

The SBA doesn’t lend the money itself. A bank, credit union or other approved lender makes the loan, and the SBA guarantees a share of it. If the business fails, the SBA covers part of the lender’s loss. That guarantee is what lets a lender say yes to a first-time owner opening a brand-new location, a loan it would usually decline on ordinary terms.

How SBA loans work for a franchise

Two SBA programs matter for franchise buyers. The 7(a) program is the general-purpose one: it can pay the franchise fee, construction and leasehold improvements, equipment, inventory and working capital, and it is the one most franchise buyers look at first. The 504 program is narrower. It pays for land, buildings and machinery with a long useful life, at a fixed rate, and suits owners who want to buy their building rather than lease it.

Both programs come with paperwork a conventional loan doesn’t: a business plan with projections, personal financial statements, tax returns, and an unlimited personal guarantee from everyone who owns 20% or more of the business. Your franchisor’s sales team will usually know which lenders handle its brand most often, and some franchisors keep a list of preferred lenders.

First, check that the brand is eligible

Before anything else, the brand has to be on the SBA Franchise Directory. Under the SBA’s lending rules (SOP 50 10 8.1), a lender can’t submit or approve an SBA-backed loan for a franchise brand that isn’t listed, whatever your own credit looks like. Most well-known brands are on it: 192 of the 211 brands on Franchise Tally were as of October 28, 2026. Every brand page here shows its status in the company snapshot, and you can search the full directory for any other brand.

SBA 7(a) loans

The 7(a) program has several versions, and the one your lender uses depends mostly on the size of the loan. The largest 7(a) loan is $5 million. Smaller loans are simpler to process, but the SBA guarantees less of the SBA Express loan, so some lenders are pickier with it.

Rates can be fixed or variable, and the lender sets them within limits the SBA publishes. Variable rates are set as a spread over a base rate, usually the prime rate, and the spread allowed shrinks as the loan grows:

How long you get to repay depends on what the money buys. Real estate can be spread over up to 25 years. Equipment, working capital and inventory are generally limited to 10 years, longer for equipment that lasts more than ten. A typical franchise loan mixes all of these, so the lender works out a blended term. Payments are monthly, principal and interest together, and a variable-rate payment moves when the base rate does. The figures in this section are from the SBA’s 7(a) terms for lenders.

The SBA also charges the lender a guarantee fee on each loan, which lenders may pass on to the borrower. The fee changes each fiscal year, so ask the lender for the current figure in writing.

SBA 504 loans

A 504 loan is for buying or building the property the business runs from, or for machinery with at least ten years of useful life. It can’t pay for working capital or inventory, so franchise owners who use it pair it with a 7(a) loan or their own cash for the rest. 504 loans are made through Certified Development Companies working with a bank, carry a fixed rate tied to the 10-year Treasury rate, and run for 10, 20 or 25 years.

For most franchises the 504 program only matters if you plan to own the real estate: a drive-thru restaurant on its own lot, a car wash, a hotel or a child-care center built for the purpose. Brands that open in leased storefronts rarely need it.

The down payment

The SBA calls it an equity injection. For a business that is new or has been operating for a year or less, its rules require at least 10% of the total project cost to come from you: all the costs needed to open, whatever the source of the money. The rest can be borrowed. For SBA Express loans the SBA leaves the decision to the lender, and for any loan a lender can ask for more than the minimum if it thinks the plan needs it.

A worked example

Say the franchise you want costs $360,000 to open, about the low end for a typical well-known brand here. At the 10% minimum you would put in $36,000 and borrow $324,000. That is a standard 7(a) loan, so the SBA guarantees 75% of it and the rate can be no more than the base rate plus 3%. Spread over ten years, the payment on $324,000 is roughly $4,372 a month at an assumed 10.5% interest rate, before the royalty, rent and payroll.

Run your own numbers in the cost calculator: pick a brand, set your cash and the loan rate, and it shows the loan amount, the monthly payment and the royalty at the sales you expect. For example, a Jersey Mike’s costs $436,176 to $1,162,228 to open.

Other ways to pay for a franchise

An SBA loan isn’t the only route. Some franchisors lend part of the cost themselves, most often the franchise fee or equipment: 49 of the brands here say they offer some financing, while 136 offer none and leave buyers to arrange their own. Each brand page lists what its franchisor offers. Conventional bank loans suit buyers with substantial assets or an existing business. Equipment leasing spreads the cost of ovens, vehicles or machines over their life. Some buyers roll retirement savings into the business, which avoids a loan but puts those savings at risk and comes with strict tax rules, so get advice before doing it.

Whichever way you pay, borrow against a realistic plan. Use the brand’s own figures for what it costs to open, ask current owners how long it took to break even, and make sure the loan payment still works in a slow first year.