Could your Franchise Business Benefit from an SBA Loan?

By Sims Richardson, VP of Franchise Restaurants, Live Oak Bank

The Small Business Administration (SBA) 7(a) loan program is a fantastic resource for franchisees who are planning to open a franchise restaurant or own less than ten locations and are seeking capital to continue growth. The SBA program allows borrowers who are not buying real estate to have up to a 10-year term and those who are buying real estate to have a 25-year term. Both options give the customer cash flow flexibility and typically do not have any restrictive loan covenants. As you are exploring SBA financing options for your franchise, there are a few common questions that may cross your mind: 

 

How do I know what SBA lender to use?

The SBA lending programs can have a bad reputation for being cumbersome, last-resort-loan-funding options. Much of this misperception is based on prior experiences with banks who do not specialize in SBA lending, who are not preferred SBA lenders or who do not have specific lending expertise or knowledge of the complexities of the franchise restaurant industry. It’s true that SBA lending requires numerous documents and can be tedious for borrowers when the lender is not a specialist. When considering an SBA loan, it is helpful to seek out a lender who is part of the SBA’s Preferred Lender Program (PLP).

Live Oak Bank is part of the SBA’s PLP. As a PLP lender, we know how to determine eligibility, properly structure the loan and collect appropriate documents to keep things moving smoothly. PLP status also allows the bank to approve the loan without waiting for the SBA’s approval; the bank acts on behalf of the SBA. This can result in a much faster loan process for our customers.

 

What documents will my lender need?

To begin the loan application process, you’ll need the last three years of personal and business tax returns, year-to-date profit/loss statement and your use of proceeds or business plan. Having easy access to your financials or a reliable CPA who can get documents to you at a moment’s notice will help move the SBA loan process along quickly. 

Keep in mind the loan doesn’t close right after approval! The closing stage is typically the most prolonged and document-intensive part of the SBA process. Some of the required documents include: 

  • A life insurance policy
  • Leases for your business’ locations
  • A business valuation
  • A purchase agreement (if you are acquiring a business or commercial real estate with the transaction) 
  • Corporate documents for the businesses you won
  • Tax transcripts from the IRS

 

When can I close my loan for my franchise?

Be sure to ask your lender on the first phone call about a realistic closing timeframe and continue to check on this throughout the process in case anything changes. If you take an extra week to get one of the closing requirements to your lender, it could delay the closing of your loan. It is crucial to stay on the same page as your lender because deals can fall apart if you push a closing significantly on a seller or landlord a few days before their expected close. 

It is also essential to divulge any credit, legal or historic business issues that could impact your loan approval in the initial conversations you have. A lot of lenders have certain “non-starters,” so be sure to ask if there’s anything that could derail your loan down the line. The bank will find out about these eventually! 

At Live Oak Bank, from initial application to funding, the process typically takes 40-45 days if you are not buying real estate and 45-60 days if real estate is being purchased. Buying, building or expanding your restaurant franchise is a significant project that requires a great deal of planning, including getting pre-qualified for a loan. Pre-qualification can typically take from three to five business days. Adequate document preparation can help ensure that your pre-qualification is quick.

Live Oak strives to help you master your franchise and achieve your dreams. We understand that this is more than just your livelihood – it’s who you are. With a fusion of extraordinary service and expertise, our devoted team embraces a creative approach to solving problems and surpassing goals. Live Oak is ready to support you with our customized loan products focused on your long-term success. Our team of industry experts understands the nuances of your specific franchise model, and we want to invest in you because we know you’re ready to make an impact. Beyond the traditional banking experience, we set out to be an asset to each and every one of our customers by turning obstacles into opportunities. Let our team confidently guide you through the lending process and together, we’ll craft a unique plan that can allow you and your business to thrive.

Franchise Flippers thanks Sims Richardson for contributing this article and sharing his expertise in the franchise space.  Franchise Flippers is the premier franchise resale marketplace and resource center. We are dedicated to helping franchise buyers and sellers connect and get deals done. Visit us at www.franchiseflippers.com and learn how we can help you.

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