Franchise and Small Business Startup Loans

Startup business and franchise loans can be more diverse and unpredictable in lender appetite and criteria than established business loans or business purchase loans. Some business industries and franchise brands enjoy a strong lender demand while other emerging brands can struggle to find lenders who will provide consistent startup lending.

With LoanBox you don’t have to think about it much because the system is automated to find the right lenders for you. When you complete your loan application and package the LoanBox platform matches your key inputs, instantly runs a few calculations and triggers the alert for each lender that your loan package meets their startup business/franchise loan criteria screening standards.

Startup Loans

Startup business loans is a popular loan purpose in SBA lending. While it varies by year, startup loans account for just under 20% of all SBA 7(a) loans and nearly 40% of the franchise funded loans over the last year. While the SBA previously mandated a minimum 10% equity injection for startups, this requirement was waived in 2023. However, despite the SBA's allowance for 100% financing for startups, not all lenders have adopted this policy. Many lenders will require a minimum 10%, 20% or 30% equity injection (down payment) for startups.  

For franchises this amount is often offset by the franchise and legal fees already paid. Down payments are typically paid from a borrower’s savings, from a family member gift, and if applicable (and appropriate for the borrower) a ROBS plan type program where you utilize a retirement account to fund a new business launch.

Banks vary greatly in experience and appetite for startup business loans. However all banks like strong borrowers and a borrower’s net worth, available collateral, and business experience carries the most weight with most banks when approving startup loans. The required down payment can also be influenced by the borrower’s PFS (personal financial statement) with the weaker the PFS the higher the percentage required.

Generally speaking a franchise startup is viewed more favorably than a non-franchise in terms of SBA lending. Over the last trailing 12 months there were 47,338 SBA 7(a) loans funded of which 3,680 were franchise branded. Of the 6,817 funded startup loans over this period a total of 2,133 were franchise startups. So while franchises accounted for 8% of the total funded loans franchises accounted for 31% of the funded startup loans.

LOAN OPTIONS FOR STARTUPS

Conventional Lending

To be eligible for a conventional startup loan, you typically need to have strong net worth reflected in your personal financial statement, proportional to the loan amount, and you are generally required to have experience as an operator or business owner.

Conventional lenders typically cap their LTV (Loan-to-Value) ratio at 75%, meaning a 25% equity injection is needed. This is either through that while acquisitions may not require a down payment, startups do. For conventional startup loans, it is a good rule of thumb to anticipate a down payment or collateral equivalent to at least 25% of the loan amount.

SBA Lending

The SBA is a popular lending resource for business startups. Banks of course prefer to lend to a business which can show historical profits and startups are all projection based and blue sky from a risk analysis perspective.

The SBA program incentivizes banks with their guaranty to provide loans to small business owners they typically would not lend without such a SBA guaranty. Startups squarely fall in this category with most banks.

SBA does not mandate a cash down payment for startup loans. However, most SBA lenders exercise discretion in this matter. While startup borrowers come from diverse financial backgrounds and franchise brands, SBA lenders may require a down payment, typically around 10-20%, if they deem it necessary, and most lenders always do for new startups.

ROBS / Retirement Investment

Rollover for Business Startups (ROBS) plans allow entrepreneurs to fund their ventures using retirement savings but come with intricate setup and compliance requirements. These complexities arise from stringent regulations, administrative tasks, and the potential need for professional assistance.

Successfully navigating these challenges involves thorough research, professional help, ongoing maintenance planning, and utilizing services to streamline the process. Proper understanding and preparation enhance the likelihood of successful ROBS plan implementation.

FINANCE
YOUR WAY 

DO-IT-YOURSELF BUSINESS LOANS

  1. Complete application and loan package

  2. See matching lenders

  3. Select one or all matching lenders to access your loan package

  4. Receive loan proposals from interested lenders

  5. Select the winning lender and e-sign their loan proposal

Use the tools and intel available, follow the process, receive alerts at every stage along the way, and utilize LoanBox human support as needed.

LOANBOX ADVISOR SUPPORTED LOANS

  1. Complete applicant summary form

  2. Have consultation

  3. Upload the docs requested

  4. Receive, discuss, and approve your LoanBox Advisor plan

  5. Provide needed docs as requested as your Advisor navigates everything for you

Your loan is still managed on the LoanBox platform, so you still have access to the same lenders and receives the same alerts.

Project States for Startup Business Loans

FY 2024 SBA 7(a) Startup Business Funded Dollars

All states had a change of ownership loan funded with borrowers from 2,498 cities.

Top 20 Industries for Startup Business Loans

FY 2024 SBA 7(a) Startup Business Funded Loans

For all funded change of ownership loans in FY 2024 there were loans to businesses from 465 different industries with 170 different industries for franchise funded loans.

SBADNA Analytics

All SBA data mentioned or shared on this website comes from the lending analytics platform developed and maintained by SBADNA Analytics. SBADNA and LoanBox are both owned by the same parent company FuseSync LLC. Neither LoanBox nor SBADNA validates or verifies the source data released by the SBA.

Data Source & Methodology

The original source of SBA loan data is derived from data released by the U.S. Small Business Administration (SBA). The SBA collects individual loan data from the SBA lender/bank approving and providing SBA loans. The SBA then makes basic loan data public through the FOIA (Freedom of Information Act) requirements. The SBA FOIA data is imported into the SBADNA advanced analytics platform which is then used to generate the reports and rankings

Read more about SBADNA utilizing SBA loan data source and methodology.