SBA Loans for Franchises: Directory, Down Payment, Terms
An SBA 7(a) loan can pay for real estate, working capital, equipment, furniture, fixtures and supplies. The Small Business Administration does not lend the money itself. A bank or other lender makes the loan and SBA guarantees part of it; as SBA puts it, “You will always work directly with your lender and not with SBA” (SBA, 7(a) loans).
The rules lenders follow are in SBA’s Standard Operating Procedure (SOP) 50 10. The current version, 8.1, took effect October 1, 2026 (SBA, SOP 50 10). Everything below cites that version. Check whether your brand is on SBA’s Franchise Directory and how much eligible equity the lender requires. Standard 7(a) and 7(a) Small startup loans have a 10% project-cost requirement. For SBA Express, the lender decides whether to require an equity injection.
Check the SBA Franchise Directory first
SOP 50 10 8.1 is direct: “If the Applicant’s brand meets the FTC definition of a franchise, it must be on the Directory in order to obtain SBA financing.” A lender cannot submit or approve the loan for a brand that is not listed. SBA publishes the Franchise Directory as a spreadsheet. Check the effective date on SBA’s download page before using a saved copy; the directory can change.
The directory records whether SBA found the brand to be a franchise, its SBA Franchise Identifier Code, and any extra issue the lender must consider for that brand. Listing “is not an endorsement or a guaranty of the success of the brand.” If your brand is missing, the franchisor can apply by sending its agreement, FDD and other required documents to SBA for an eligibility review.
Startup equity: the 10% rule and SBA Express
SBA treats a business that has been generating revenue for one year or less as a start-up. In the Standard 7(a) and 7(a) Small sections, SOP 50 10 8.1 requires an equity injection equal to at least 10% of the total project cost. Project cost includes all costs required to become operational, regardless of how they are funded; lines of credit and 504 loans are excluded from that calculation. Loans approved more than 90 days apart count as separate projects. The SOP’s separate SBA Express section leaves the decision to require an equity injection to the lender.
The SOP lists what can count as equity:
- Cash that is not borrowed, including a gift.
- A personal loan, if you can show it will be repaid from something other than the business’s cash flow. Your salary from the business does not qualify.
- Debt on “full standby,” meaning no principal or interest payments for the life of the 7(a) loan.
- Grants with no repayment or clawback while the 7(a) loan is outstanding.
- Assets other than cash, with an independent appraisal when the claimed value is above book value.
- Eligible prepaid expenses the lender has verified with invoices, canceled checks or bank statements.
For Standard 7(a) and 7(a) Small loans, the lender must verify SBA-required equity before disbursing loan money. For SBA Express, the lender decides whether to require equity. If it ordinarily verifies equity for comparable non-SBA loans, it must also verify equity on an SBA Express loan when it requires an injection (SBA, SOP 50 10 8.1). For a franchise, Item 7 of the FDD is a starting point for the project cost: it lists the franchisor’s estimated initial investment, including additional funds for the stated opening period (16 CFR 436.5(g)). Its notes and exclusions matter, and local costs may differ. Each franchise cost page on this site shows that table with its FDD page number.
Which SBA loan fits
| Program | Maximum loan | What to know |
|---|---|---|
| Standard 7(a) | $350,001–$5,000,000 | Maximum 75% SBA guarantee; 10% start-up equity rule |
| 7(a) Small | $350,000 | Maximum 85% SBA guarantee for loans of $150,000 or less, or 75% for larger loans; 10% start-up equity rule |
| SBA Express | $500,000 | 50% guarantee; made only by lenders with SBA Express authority; whether to require equity is “left to the business judgment of the Lender” |
| 504 | See SBA’s 504 page | Buildings, land and machinery with at least 10 years of useful life; not working capital or inventory |
Sources: SBA, SOP 50 10 8.1, SBA lender program details and SBA, 504 loans.
The guarantee is SBA’s promise to the lender, not to you. You still owe the whole loan.
A 504 loan pairs a lender’s loan with a loan from a Certified Development Company. Under the SOP, a new business must contribute at least 15% of a 504 project, or at least 20% if the project also involves a limited or special purpose property. Because 504 money cannot pay for working capital or inventory, the additional-funds and opening-inventory lines of an Item 7 budget need another source.
How long you can borrow
SOP 50 10 8.1 requires “the shortest appropriate term based on the use of proceeds and the Borrower’s ability to repay.” The maximum terms:
| What the money pays for | Maximum term |
|---|---|
| Working capital, inventory, intangible assets including goodwill | 10 years |
| Equipment, fixtures, furniture | Generally 10 years; up to 15 if the IRS useful life supports it, plus up to 12 months for installation |
| Leasehold improvements | 10 years, plus up to 12 months to complete the work |
| Real estate, including construction | 25 years, plus a reasonable construction period |
A loan for several purposes gets a blended term. If 51% or more of the proceeds pay for real estate, the term can be up to 25 years, but that option does not apply to loans that finance a change of ownership. Buying an existing franchised outlet from its owner is a change of ownership, which has its own rules in Appendix 15 of the SOP.
Interest rates are set by the lender up to SBA’s maximums, which differ for fixed and variable rates and by loan size. Ask the lender for the rate, the fees and whether the rate can change.
Personal guarantees
“Any individual who has direct and/or indirect ownership of 20% or more of an Applicant must provide an unlimited full guaranty.” SBA or the lender may also require a guarantee from someone with a smaller stake, or none, who is critical to running the business. Each guarantor gives the lender a personal financial statement. If the business cannot repay, the lender can pursue the guarantors personally.
What lenders review for a franchise
For start-ups, the lender’s credit analysis must include projections showing debt service coverage of at least 1.15 within two years of funding, meaning cash flow at least 1.15 times the loan payments. In several 7(a) programs the SOP also tells lenders to “review any credit information provided, such as the number of failed franchisees and cash flow projections provided by the franchisor.”
You can check the same evidence yourself. Item 20 of the FDD shows how many outlets were terminated, not renewed, bought back or closed in each of the last three years; see how to check franchise closures and the franchise exit-rate study for comparable brands. Item 19 shows any sales or profit figures the franchisor chose to disclose, which a lender may use to test your projections; see what Item 19 shows.
Financing from the franchisor: Item 10
Item 10 of the FDD must describe every financing arrangement the franchisor, its agent or affiliates offer “directly or indirectly”: what it covers, the lender and its relationship to the franchisor, the amount, the annual rate including finance charges, and the other terms (16 CFR 436.5(j)). The rule counts as indirect financing “an arrangement in which a franchisor or its affiliate receives a benefit from a lender in exchange for financing a franchise purchase.” If a salesperson points you to a preferred lender, check Item 10 to see whether the franchisor benefits from that referral.
Estimate the payment
The SBA loan calculator shows the down payment, loan amount and monthly payment for a project budget, a down-payment share, an interest rate and a term. It can load a brand’s Item 7 range as the budget. The default 10% down payment matches the Standard 7(a) and 7(a) Small start-up minimum. For SBA Express, ask the lender what equity it requires. The default rate and term are placeholders for your lender’s quote.
Before you apply, confirm the brand on the Franchise Directory, total the Item 7 budget with your own local quotes, and count only cash that qualifies as equity. The FTC also suggests an accountant to help you “understand the franchisor’s financial statements, develop a business plan, assess any earnings projections” (FTC consumer guide).
