SBA loans are a popular choice for franchisees, particularly in the restaurant industry. Here’s why these loans make good financial sense.
Reason 1: Lower Down Payments
- SBA loans often require smaller down payments, allowing franchisees to retain more working capital for daily operations. This benefit is invaluable, especially for new restaurants needing funds to navigate the opening phase.
Reason 2: Longer Repayment Terms
- SBA loans typically offer repayment terms of 10 years for most loan purposes including leasehold improvements, furniture, fixtures and equipment, inventory, and working capital. Real estate is typically financed for 25 years, and if real estate represents the majority of loan proceeds, all the other uses can also get 25-year financing, all packaged in one 25 year loan. These extended terms make it easier to generate strong profit.
Reason 3: Finance Just About Anything
- SBA loans can be used for about everything needed to make your business successful. When opening a new restaurant, the list of items to be paid for can feel endless, from construction costs, labor, marketing, attorney and architect fees, franchise fees, inventory, lease deposits, etc. All of this can (and should) be included in your total project cost estimate. Not including a cost in your loan application is a mistake to be avoided. Come up with your budget and go through it with the franchisor and your SBA lender.
Reason 4: collateral
- While other business loans typically must be fully secured by real estate or equipment, SBA loans are much more reasonable when it comes to collateral. It is common for SBA loans to have a collateral shortfall and that’s ok. The SBA does look to be fully secured when possible but, in many cases, available collateral is not sufficient to fully secure the loan. This collateral leniency really helps you qualify for restaurant financing when many restaurants lease their space.
Conclusion
For franchisees, SBA loans provide the financial breathing room necessary to grow a thriving restaurant business. Their terms and flexibility make them an attractive option for those launching or expanding within a franchise.
Considering an SBA loan for your restaurant franchise? Let’s talk about how an SBA loan can work for you and explore the best financing options available. Contact me today to get started on a loan that aligns with your goals.