Can I use an SBA Loan to Buy a Franchise? Your Guide to SBA Franchise Financing

An entrepreneur is ready to invest in a franchise. Maybe it’s their first location, or maybe it’s time to expand. But as they start to crunch the numbers, reality sets in. Franchise ownership requires more than paying the upfront fee. A borrower will need to account for buildout or renovation costs, equipment purchases, marketing, staffing, and enough working capital to keep things running smoothly until revenue ramps up. Altogether, that can mean needing anywhere from tens of thousands to several hundred thousand dollars in financing.

Here’s the catch. Many traditional lenders avoid loans under $350,000. That leaves a frustrating financing gap for franchise entrepreneurs. As April Lewis, one of our loan officers, explains, “The biggest obstacle franchising faces is start-up financing. They’re trying to grow, but it’s hard to find lending under $350,000. There aren’t many lenders focused there.”

That’s exactly the space SBA 7(a) Community Advantage loans are designed to fill. 

Why SBA Community Advantage Works for Franchises

The SBA 7(a) Community Advantage loan fills a gap that many traditional lenders ignore. Community Advantage loans fall between $30,000 and $350,000, with an average approval amount of $177,000 in FY2023, according to SBA data.^1[i] This makes them a strong fit for franchise projects that don’t need millions in financing. Franchise businesses can use these funds to purchase a new franchise, expand an existing location, upgrade equipment, or keep cash flow steady while the business grows. The flexibility of this program allows entrepreneurs to focus on running their franchise without worrying about whether their financing covers the right expenses.

As April puts it, “Community Advantage is so important because it fills that space. These loans focus on $30,000 to $350,000… designed to fit franchising.” This is where CDC Small Business Finance makes the difference. Operating since 1978, we have funded more than 12,000 small businesses including multiple franchises like Jersey Mike’s and Massage Envy. In addition, we provide free business advice and guidance before and after the loan closes. This combination of accessible capital and hands-on support makes us an excellent partner for a small business’ growth and success. 

“Community Advantage loans are designed to fit franchising. Its smaller loan amounts, broader credit parameters, and flexible ranges meet borrowers where they are.”

April Lewis, Loan Officer, CDC Small Business Finance

Eligibility Requirements & the SBA Franchise Directory

To qualify for an SBA 7(a) Community Advantage loan, a business needs to meet a few key requirements:

• Operate in the United States: The business must be based in the United States, and must have 100 percent of their direct and indirect beneficial ownership held by United States citizens, United States Nationals, or Lawful Permanent Residents.
• Choose an SBA-eligible franchise: The brand must appear on the SBA Franchise Directory. Learn more in our CDC Small Business Finance blog on SBA SOP updates.
• Have a solid plan: Businesses need a detailed business plan and 24-month cash-flow projections.
• Show ability to repay: Personal and business financials that demonstrate the capacity to repay the loan. Lenders must be prudent in who they finance and borrowers must have a way to pay for their personal expenses while their start up is ramping up, whether that’s outside income or savings. 
• Provide franchise documents: Businesses must have a Franchise Disclosure Document (FDD) and a franchise agreement.

Documents You’ll Need (& Why)

When applying for an SBA 7(a) Community Advantage loan, we’ll ask for several documents that show the buyer prepared and loan ready. Each one helps us and the SBA understand the business and confirms eligibility:

• Personal and business financials: These give us a clear picture of the small business’s current financial position.
• Business plan and 24-month cash flow projection: This shows how the franchise will generate and manage revenue.
• Credit history: We use this to evaluate repayment ability and the borrower’s overall credit story.
• Collateral (if needed): Some loans require collateral, depending on the deal structure.
• Franchise Disclosure Document (FDD) and franchise agreement: These confirm the franchise brand’s eligibility and detail the terms of the franchise relationship.

Having these documents ready will speed up the process and increase the chances of approval.

What CDC Small Business Finance Looks For
(& How We Help)

When a borrower comes to us for an SBA 7(a) Community Advantage loan, we don’t just review paperwork and make a decision in silence. We work with the borrower. Loan officers like April Lewis review a borrower’s Franchise Disclosure Document and cash-flow model side-by-side — sometimes with “highlighters and spread across the desk” — ensuring that details such as a $50,000 buildout estimate align with projected revenue. Taking the time to understand the business’s goals and their story assures that the full picture comes through in the application.

April reminds applicants that outside of the standard SBA requirements, there are four items she’s looking for early in the process, “Experience, credit, down payment liquidity, and outside income.”

We look at an applicant’s experience in business or management. An MBA is not a prerequisite, but their ability to lead plays a big role in a franchise’s success. Additionally, experience in the same industry can help with a deal. “What we normally look for with any kind of startup is the type of experience someone has in the industry,” April says. “We want the borrower to have experience, because the more expertise they bring, the more successful they’re likely to be over time.”

Strong credit and healthy liquidity help demonstrate readiness for a franchise loan. We look for a solid personal credit score of 670 or above and that shows consistent repayment history. Down payment liquidity is just as important. Having accessible funds, not tied up in retirement accounts or liquid assets, shows you can invest confidently in your business and manage early expenses with stability.

We know numbers matter, but they don’t tell the whole story. That’s why we help highlight a borrower’s credit history, available liquidity, and any outside income that strengthens their repayment capacity. “If they already own a business, that business absolutely matters in the application,” says April. “It’s called an affiliated business. Borrowers say, ‘Oh, it’s not going to matter.’ It absolutely does because that’s an income source for them.”If there are gaps in a franchise loan package, we’ll guide borrowers through what to improve. And once the loan closes, we continue supporting them with free business advising. Our goal is simple. We want to help small business borrowers get financing and use it to grow a successful franchise.

Timeline & What to Expect

Applying for an SBA 7(a) Community Advantage loan is a process, but we walk with borrowers from start to finish so they know what’s coming next.

Most borrowers complete the process within 60 to 90 days, depending on how quickly documents are submitted and the complexity of the project.

Need additional support? Consider a Franchise Coach

Financing is one part of owning and growing a franchise. Choosing the right concept and preparing a personal and financial plan can feel overwhelming. That’s why many entrepreneurs turn to The Entrepreneur’s Source (TES), a leading career ownership coaching organization.

As an approved financing partner of TES, we step in once borrowers have identified the franchise that fits their goals. TES helps compare franchise choices and define what the small business wants to achieve using their “I.L.W.E.” model: Income, Lifestyle, Wealth, and Equity.

Since its founding in 1984, TES has contributed more than $1 billion in investments across more than 600 different franchise brands.² And their online resources on exploring financing options and Franchising 101 can show how financing fits into a business plan of franchise ownership.

As April points out, “If you’re brand new to small business ownership, franchising can be a wonderful route because of the support. The downside is you often have to pay for it.” However, TES Career Ownership Coaches earn money from referral fees from their business and financial partners. The small business owner pays nothing for coaching.

Once a borrower has narrowed down their franchise options, CDC Small Business Finance steps in to help secure financing. We guide franchises from “I’m ready” to “We’re open for business.”

SBA Franchise Financing Q&A

Here are some of the most common questions we hear about SBA franchise financing.

Ready to finance a franchise with an SBA Community Advantage Loan?

The sooner a borrower starts, the sooner the franchise can open its doors. As April Lewis, one of our loan officers, puts it: “The earlier, the better. Come to us and we can run the analysis, see where you are, and determine if you’ll be ready in a month or if it’s going to take six months.”

We’re ready to help fund your franchise. Whether it’s your first location, your next unit, or an upgrade that keeps you competitive, our SBA 7(a) Community Advantage loans are designed for franchise entrepreneurs like you, and our team will guide you every step of the way.

1. https://www.theentrepreneurssourcediscovery.com/about-tes/ ↩︎
2. https://data.sba.gov/en/dataset/activity-reports-fy2023/resource/d9aa2e79-6eaf-4e46-aaf4-ca9aa6f2e9b6 ↩︎