Sign up for email updates from SBAReceive helpful business tips and upcoming events in your area.


Privacy Policy
Log in to SBA.gov:
Enter your SBA.gov username.
Enter the password that accompanies your username.

Community Header Banner

SBA Approved Franchises: How do they work and how does the loan application process change?

by JimD, Former Moderator

  • Created: July 22, 2010, 7:29 am
  • Updated: June 13, 2011, 5:12 pm
Share:
4 comments

Are you looking to buy a franchise, or do you currently own one? If so, you're part of a growing population. The popularity of franchises over the last several decades has contributed to the massive growth of related jobs and new businesses. To help facilitate their development, the Small Business Administration has created a franchise program to simplify their financing process.

What does it mean to be an SBA-approved franchise?

SBA-approved franchises are select business opportunities whose agreements have been accepted by the SBA. When it comes to securing an SBA-backed loan, those applying for an approved-franchise have it easier and quicker. Applicants for SBA-approved franchises benefit from a streamlined review process that expedites their loan application. Because the particular franchise is pre-approved, the loan review is less complex and focuses on specific aspects of that branc;s business plan.

Where can I find a list of SBA-approved franchises?

Through a partnership with SBA, the Franchise Registry provides a list of approved franchises*. This list allows you to search by name if you have a specific franchise in mind or by program/industry if you doing research in related franchise opportunities.

Should I be worried if my franchise is not on the SBA-approved list?

Franchises do not appear on the list for a variety of reasons. In some instances, the franchisor may decide not to have it listed. If this is the case, SBA and your commercial lender may need to review and evaluate more financial information when you seek SBA financial assistance, which may add more time to process the request. Being on or off the list is not an endorsement or indication of quality and profitability, so you should still thoroughly research for your potential franchise opportunity.

What Else is needed by SBA and my bank if my franchise is on the SBA-approved franchise list?

Additional eligibility qualifications are required for applicants of financing for an SBA-approved franchise. These qualifications include items such as general eligibility, conflicts of interest, business plans, and use of proceeds. When you apply for an SBA-backed loan, you will still need to submit paperwork according to their application process. A SBA Loan Application Checklist can help you prepare all the necessary documentation. Common documentation includes:

  • Purpose of the loan
  • History of the business
  • Financial statements for three years (existing businesses)
  • Schedule of term debts (existing businesses)
  • Aging of accounts receivable and payable (existing businesses)
  • Projected opening-day balance sheet (new businesses)
  • Lease details
  • Amount of investment in the business by the owner(s)
  • Projections of income, expenses and cash flow
  • Signed personal financial statements
  • Personal résumé(s)

How do I proceed?

Whether or not your franchise is on the SBA-approved list, there are still steps should take to move your loan application process forward:

  • Review process for SBA loans -Understanding the SBA process will help minimize the about of time the process will take. Being on top of what you need to submit and when can expedite everything.
  • Pull together all necessary information and documents - More information will be needed to process the request. SBA will require less financial information if the franchise is on the SBA-approved list. There is common information and documentation that you will need to provide to SBA and your potential lender whether or not your franchise is on the SBA-approved list. Being on the SBA-approved franchises list will make the SBA approval portion move faster, but SBA has no control over the actual lenders.
  • Find a lender- SBA provides a list of Preferred Lenders that are familiar with the SBA process. You are not required to use a preferred lender, but if you have the option it could be beneficial.

Throughout the process make sure that you are in contact with your franchisor and keep him or her updated.

Whether or not your franchise is on the SBA-approved list, it is important to research your financing options. An expedited process is available for those on the list, but this does not guarantee approval. Remember, items such as general eligibility, conflicts of interest, business plans, and use of proceeds affect your odds, whether your franchise is pre-approved or not.

*Non-government site.

Related Resources

Tags: Community Blogs, Small Business Cents

Comments

FranchiseKing | Guest Blogger | 7/6/2010 - 12:37 pm

Jim, Thank you for that great explanation of the SBA registry. I only disagree on oen thing; They should not be called 'SBA Approved Franchises.' It's great that the SBA has a specific st of criteria for this program. However...there's no guarantee that the franchises are good ones, not that they may even be right for the specific buyers that are looking for one. The SBA does great things. I'm all for continuing to support them in all they do. I just don't want prospective franchise buyer's to be misled by a series of 'words.' It's all about the research. The Franchise King® Joel Libava --- This post was edited to remove a commercial link. Read our discussion policies for more Community best practices.
Professional Web Site: The Franchise King.com

JerrySCORE | Performer | 7/6/2010 - 12:37 pm

Franchise seekers are mislead to think that an SBA approved' franchise is of better quality than one not on the approved list. That's not so. SBA's criteria to be on the Franchise Registry list is based upon the degree of control exercised by the franchisor over the franchisee (owner of the unit). If there is too much control, the franchisee may be acting more like a branch office of the larger franchisor's organization. As such, it can be disqualified from SBA financing based upon the agency's definition of small.' Some lenders will not accept loan applications from franchisees until the franchise is on the registry. The reason is that the processing takes longer since SBA has to review the franchise agreement and relationship between the franchisee and franchisor. But again, it does not reflect of the safety of quality of the franchise. So you still have to do extensive due diligence before making a buying decision. For free mentoring through the process, contact SCORE, Small Business Development Center or Women's Business Center in your area. Jerry Chautin is a volunteer SCORE business counselor, business columnist and SBA's 2006 national 'Journalist of the Year' award winner. He is a former entrepreneur, commercial mortgage banker, commercial real estate dealmaker and business lender. You can follow him at Twitter.com/JerryChautintenonline.org/sref/jc1bio.html --- This post was edited to remove a commercial link. Read our discussion policies for more Community best practices.

JimD | Former Moderator | 7/6/2010 - 5:53 am

Thank you Jerry. Great point.

JimD | Former Moderator | 7/1/2010 - 6:29 pm

Irrelevant Post