How do I get a franchise loan to start or buy a franchise?

The specifics

Franchise startup financing comes from three main sources: SBA 7(a) loans, business term loans, and specialized non-SBA franchise lenders. According to SBA program terms, a 7(a) loan offers 10–25 year repayment at Prime + 2.75–4.75% APR, with loan amounts ranging $50K to $5M+. You'll need a minimum 640 FICO score, at least 24 months in business, and annual revenue of $100K+.

Business term loans move faster—funding in 2–5 days according to 2026 lending data—and cost high single digits to low teens APR for strong credit files (18–35% APR for thinner files). They range $25K–$1M+ on 1–5 year terms, requiring only 600 FICO and 12 months in business. Equipment financing specifically covers vehicles, machinery, and build-outs at 8–13% APR over 48–84 months, often with 0% down for borrowers with 650+ credit and funding in 3–7 business days.

For down payments, typical franchise equity requirements run 20–40% of total franchise cost. Equipment loans can cover the remaining 60–80% of specialized assets (ovens, point-of-sale systems, delivery vehicles). Working capital loans—ranging $10K–$500K on 3–24 month terms—fund your initial inventory, payroll, and operating reserves at factor rates of 1.15–1.40x repayment (roughly 25–60%+ APR equivalent).

Debt-service-coverage ratio (DSCR) matters critically: lenders typically require your monthly loan payment to stay under 8–12% of gross monthly revenue, or a minimum DSCR of 1.25x overall. If you're looking to acquire a new franchise or expand an existing one, the SBA 7(a) loan is the gold standard for cost and terms, but it takes the longest to close. According to the Bridge Marketplace's ranked list of best franchise financing companies for 2026, non-SBA lenders often approve first-time franchisees faster when the franchisor has a strong brand and support system.

Qualification & edge cases

If your credit is fair (620–679 FICO), expect a 3–5% APR premium over prime-tier applicants on SBA loans. You can still qualify, but your monthly payment will rise significantly. Many SBA-approved and non-SBA lenders specialize in fair-credit franchisee lending; the key is having franchisor backing or existing business revenue.

Time in business is the stickiest requirement. Most SBA 7(a) lenders require 24 months in business—meaning you cannot use an SBA loan to start your first franchise from scratch. First-time franchisees should apply for business term loans (12-month requirement), working capital programs (6-month requirement), or non-SBA franchise funding platforms, which weigh the franchisor's brand strength and support system more heavily than your personal track record.

If your franchisor provides Item 19 (Earnings Claims) in their Franchise Disclosure Document, include it in your application. Franchisor-approved lenders often waive or relax revenue minimums for established, successful systems. Multi-unit buyers should plan for DSCR of 1.25x or higher—meaning your annual net income must be at least 1.25 times your total annual debt service. Additionally, according to 2026 Small Business Credit Survey data, franchisees with prior business ownership experience see approval rates 15–20% higher than first-time entrepreneurs.

Background & how it works

Franchise financing differs from independent startup lending because the franchisor provides proven systems, training, operational playbooks, and brand recognition. Lenders treat this as lower-risk than a brand-new, unproven business model. The SBA 7(a) program was designed partly to address this gap: the SBA guarantees up to 90% of the loan to the bank, so lenders can offer lower rates and longer terms to franchisees than they would to standalone startups.

When you apply, lenders typically ask for your full Franchise Disclosure Document, 2 years of personal and business tax returns, 2–3 months of current bank statements, a personal credit report, and your resume or business plan. Processing takes 30–90 days for SBA loans, 2–5 days for unsecured term loans, and 3–7 days for equipment financing.

Franchisor approval accelerates underwriting but isn't always required. Some lenders—particularly equipment financing specialists and non-SBA providers—will fund based on franchisor reputation alone. However, franchisor approval dramatically improves your odds: approved lenders often waive revenue minimums, relax credit-score floors, and move approvals 2–3 weeks faster. Many major franchise systems maintain lists of approved lenders; check your franchisor's Franchise Disclosure Document Item 8 or ask your franchise development representative directly.

If you're acquiring a second or third location, multi-unit franchise financing lets you bundle locations into a single loan, often at better rates and terms than individual loans.

Bottom line

You can get a franchise loan through SBA 7(a) loans, business term loans, or specialized non-SBA lenders—each with different speed, cost, and eligibility thresholds. First-time franchisees should start with business term loans or non-SBA programs; existing operators qualify for cheaper SBA 7(a) financing. See what rate you qualify for in 2 minutes—no credit-score hit.

Disclosures

This content is for educational purposes only and is not financial advice. franchiseeloan.com may receive compensation from partner lenders, which may influence which products are featured. Rates, terms, and availability vary by lender and applicant qualifications.

Sources

• SBA Lenders - Small Business Administration
• Average Business Loan Interest Rates: July 2026 - NerdWallet
• 2026 Report on Employer Firms: Findings from the 2025 Small Business Credit Survey
• Best Franchise Financing Companies 2026 | Ranked - Bridge Marketplace