2026-02-18
Can You Use an SBA 7(a) Loan to Buy a Franchise?
Yes. SBA lenders often prefer franchise acquisitions over independent businesses. But not for the reason most buyers think. It is not about brand recognition; It is about predictability.
Franchises give lenders something rare in small business lending: historical performance patterns across multiple operators. That makes underwriting easier and risk lower. However, not every franchise qualifies and many buyers make critical mistakes before they ever speak to a lender.
Why Lenders Like Franchise Deals
From a lender’s perspective, franchises offer:
- Established operating systems
- Proven pricing models
- Known cost structures
- Brand level marketing support
- Historical performance data across locations
- Training for new owners
This reduces one of the biggest risks in SBA lending: operator error. When a buyer with limited industry experience purchases an independent business, lenders worry about transition risk. Franchises reduce that concern.
The SBA Franchise Directory Requirement
For SBA financing, the franchise must be listed in the SBA Franchise Directory. If it is not listed, the deal cannot be approved until the franchisor completes SBA documentation. This can delay deals by weeks or stop them entirely. Many buyers sign franchise agreements before checking this.
What Lenders Evaluate in Franchise Acquisitions
Lenders are not impressed by the brand name. They analyze:
- Unit level economics
- Average revenue per location
- Margin profile after royalties and fees
- Required staffing model
- Break even timeline
- Working capital needs
- Transferability of the franchise agreement
Some franchises have strong revenue but thin margins after fees. These struggle in underwriting.
Common Mistakes Franchise Buyers Make
- Signing the franchise agreement before talking to a lender. This locks buyers into fee structures and timelines that may not work for financing.
- Underestimating working capital. Franchises often require more upfront liquidity than buyers expect.
- Choosing brands with weak unit economics - Some brands grow through franchise fees, not operator profitability.
- Assuming all franchises are “safe” for SBA. They are not; some brands consistently struggle in underwriting.
Why Franchise Deals Often Close Faster
Because lenders can underwrite them using known benchmarks. There is less guesswork in projections and transition planning. But this only works when the deal is structured correctly from the start.
Before committing to a franchise, speak with our Port 51 Lending experts. The right structure before you sign can be the difference between quick approval and a stalled deal.
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