SBA programmes
7(a) for the business, 504 for the building.
Under the SBA 7(a) programme a qualifying franchisee can borrow up to $5 million for leasehold improvements, equipment, opening inventory, working capital and the initial franchise fee. The SBA guarantees 85% of a loan of $150,000 or less and 75% of a larger one to the lender. Published lender terms run up to 10 years for working capital and equipment and up to 25 years where real estate is financed, and a personal guarantee is standard.
The 504 programme, with a maximum of $5.5 million, is built for fixed assets: land, ground-up construction and long-life equipment. It pairs a conventional first lien of about 50% of the project with a Certified Development Company debenture of about 40%, backed by the SBA, leaving the borrower to put in 10% to 20% as equity, on fixed-rate terms of 10, 20 or 25 years.
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| Vehicle | Limit and structure | Terms | Typically funds |
|---|---|---|---|
| SBA 7(a) | Up to $5 million; 85% guaranteed up to $150,000, 75% above | Up to 10 years (equipment, working capital), 25 (real estate); personal guarantee | Franchise fee, tenant improvements, fixtures, opening inventory, working capital |
| SBA 504 | Up to $5.5 million; ~50% bank lien, ~40% CDC debenture, 10%–20% equity | Fixed rate over 10, 20 or 25 years; secured on the asset | Land, ground-up construction, long-life equipment |
| Equipment finance | Set by the lessor or manufacturer | 3 to 7 years; secured on the equipment | POS systems, kitchen lines, fitness equipment, vehicles |
| Tenant improvement allowance | Landlord credit, commonly $20 to $100+ per sq ft | Paid against construction draws, usually at certificate of occupancy | HVAC, plumbing, partitions, electrical |
Eligibility
The brand has to qualify before you do.
An SBA loan to a franchisee depends on the brand. The SBA dropped its central Franchise Directory in 2023 and reinstated it in its updated lending procedures, SOP 50 10 8, effective 1 June 2025. A brand needs an active SBA Franchise Identifier Code and franchisor certifications that its agreements do not breach the SBA's affiliation rules — the test of whether a franchisor controls a franchisee so tightly that the borrower is not an independent small business.
Ask the franchisor for its SBA Franchise Identifier Code early. The lender will check it, and a brand missing from the Directory can stall an otherwise approvable loan after you have already committed to a site.
Underwriting
1.25 times the debt, from one address.
Lenders test whether a unit can carry its loan with the debt-service coverage ratio: cash flow available for debt service divided by annual principal and interest. SBA and conventional lenders typically look for at least 1.25x to 1.35x, and it is the covenant the loan is then held to.
Every input to that ratio is local. Sales depend on the trading area, occupancy cost on the lease, labour on the local wage. A franchise system's record helps a candidate get through the door; it does not transfer to a weak site, and the personal guarantee means the shortfall is yours.
- SBA 7(a): up to $5 million, 75% to 85% guaranteed to the lender
- SBA 504: up to $5.5 million; ~50% bank, ~40% CDC, 10% to 20% equity
- Tenant improvement allowance: commonly $20 to $100+ per square foot
- Debt-service coverage: 1.25x to 1.35x as a typical minimum
