SBA Loans For Franchises: A Good Option For Your Business

February 7, 2024

Obtaining business funding can be challenging for small business owners in Texas, especially if you plan to open a new franchise location.

You may have a great business plan, people eager to join your staff, and an exciting product or service to introduce to the region. However, without the funding needed to pay the typically large franchise fee, construction costs, and start-up expenses, launching a successful franchise location may be out of reach.

Fortunately, the Small Business Administration (SBA) is dedicated to supporting franchised businesses across the U.S. by providing access to lending options.

Learn more about the different types of SBA loans for franchises, what makes them a great lending option, and why you should choose Texas Gulf Bank as your SBA lending partner.

Understanding SBA Loans for Small Businesses

Whether your franchise will be a childcare facility or an auto repair shop, you need financing options that will cover costs related to securing the franchise and launching the location.

To encourage small business growth and job creation across the country, the SBA offers two primary types of business loans tailored to meet the specific funding needs of growing businesses, including franchises: the SBA 7(a) loan and SBA 504 loan.

SBA 7(a) Loans

An SBA 7(a) loan can be a versatile financing option available to franchise business owners. There are fewer restrictions than other financing options on how funds may be used for starting or growing the business. Loan amounts typically range from $50,000 to $5 million, providing the ample working capital needed to launch and operate most franchises.

What makes SBA 7(a) loans appealing is that funds can be applied to a variety of major business expenses incurred as part of acquiring and opening a franchise location.

SBA 7(a) funds may be used to pay business costs including, but not limited to:

Commercial real estate
Construction or renovation costs
Equipment and tools
Inventory
Appliances and furniture
Working capital expenses
Marketing costs
Hiring additional staff
Refinancing existing business debts

SBA 504 Loans

If your franchise business primarily needs funding for real estate purchases or major equipment financing, SBA 504 loans are a great loan option. Current franchise owners who want to invest in the surrounding property, better equipment, or future locations can benefit from the loan structures of SBA 504 loans.

Because SBA 504 loans are specifically intended for fixed assets such as real estate or machinery, they cannot be used for working capital needs, inventory purchases, or debt refinancing.

Although they offer less fund flexibility compared to SBA 7(a) loans, SBA 504 loans can be incredibly beneficial to businesses with major fixed assets to acquire. SBA 504 funds may be used for:

Purchasing land or existing buildings
Construction of new facilities
Building upgrades
Heavy machinery
Parking, roadway, or utility improvements

Advantages of SBA Loans for Franchises

There are several distinct advantages to relying on SBA loans for franchise funding compared to other types of conventional loans. These benefits include:

Manageable loan terms for most applicants.
Variety of loan uses.
Access to funding for growing small businesses.
Several loan options for underserved communities.

Applying for SBA Loans at Texas Gulf Bank

If you want to open a new franchise location and need reliable funding, the SBA loan specialists at Texas Gulf Bank can guide you through each step of the application and funding process. We have successfully helped countless business owners achieve their business goals and pursue growth initiatives through SBA financing.

A good first step before applying for an SBA loan is to check the SBA Franchise Directory. While the SBA no longer supports or maintains the Franchise Directory, this historical information could be valuable to see if your business franchise or a business similar to yours is listed in their official directory.

Then, once you begin the application process, you will be required to submit several financial and business documents as part of the loan application process, including but not limited to:

Completed SBA loan application
Copy of signed franchise agreement
2 years of personal financial statements
2 years of business income statements
2 years of personal and business tax returns
1 year of financial projections
Subsidiary or franchise documentation
Existing debt schedule
Detailed plan of use for SBA loan funds

As a local community bank, Texas Gulf Bank typically provides a prompt in-house loan review process. Plus, our dedicated SBA lender Dennis David can offer feedback about your application status, guide you regarding the documentation we need, and aim to provide a seamless, expedited loan application process.

If approved, your loan funds will be made available as soon as possible so you can move forward with business plans for growth. In addition, Dennis will review the terms of your specific SBA loan to ensure the available loan funds will be used as intended and in accordance with SBA guidelines.

Start Your SBA Loan Process Today

When you are ready to pursue strategic funding to secure a franchise business, Texas Gulf Bank is ready to help with SBA loans. Serving the Southeast Texas Gulf Coast region for over 110 years, our bank provides a productive banking and lending experience for business owners.

In addition to our expertise with regard to SBA loans and effective financing solutions, we offer businesses the chance to receive expert support from our dedicated SBA loan specialist to determine if your business is eligible for SBA financing.

To start a banking relationship with Dennis David, call us at 800-467-7216 to connect with him about SBA loans for franchises. Or, complete our contact form to get started. We look forward to participating in your growth.

All loans subject to credit approval.