When you are trying to find franchise financing, you have many options, such as the loan programs offered by the Small Business Administration. Two of these programs are ideal for franchises just starting up or needing to purchase property and expensive equipment, the 7(a), and CDC/504 loan programs. Since these programs offer excellent terms, they are in high demand and the approval process can take some time.

7(a) Loans

Most of your franchise stating expenses can be covered by the 7(a) loan program, with ongoing franchise fees being a notable exception, and you can borrow up to five million dollars over a term of seven to twenty-five years, depending on what you plan to use the funding for. The SBA is not a lender but helps guarantee part of the loan to help your startup look more favorable to bank underwriters. You will have to put up a down payment of at least ten percent and can expect interest rates between seven and ten percent.

CDC/504 Loans

The CDC/504 loan program is more complicated in structure and repayment than the 7(a) program and can only be used to purchase, renovate or refinance fixed assets such as equipment or real estate. Using this program for franchise financing will still limit you to those things and is funded through three separate entities. A Certified Development Company, a community non-profit dedicated to local economic development, will lend around forty percent, a bank will lend around fifty percent and the borrow is responsible for the remaining ten percent of the loan. You can borrow up to five million with this program and have a term of between ten and twenty years. Interest rates are between five and six percent for 504 loans.

Combining Programs

When you need the soft costs of buying a franchise, such as working capital and initial fees, as well as the funding for purchasing or renovating a location, then there are ways to combine the two programs if you have owner-occupied real estate as part of the deal. You will still have to qualify for the SBA programs, however, and a bank loan officer can help you determine what paperwork you need and whether you and the franchise, are eligible.

Finding the right franchise financing really depends on how much you need and what you need it for. The SBA 7(a) and 504 loan programs can help you with costs ranging from working capital to real estate purchases and renovations with long terms and excellent rates.