Should I refinance if I only have a year or two left on my franchise loan?

Usually, if you’re near the end of a loan, it’s not worth refinancing unless the interest rate difference is huge or you absolutely need to cut payments. This is because most of the interest on a loan is paid earlier in the term, and near the end, you’re mostly paying principal. Refinancing in the final stretch might not save much and could incur new fees. That said, if your monthly payments are extremely high and hurting your operations, extending the loan could give relief – just weigh the cost. In many cases, if there’s just a small balance left, it might be better to hustle and pay it off rather than go through a refinance. On the flip side, if that “year left” loan is a short-term loan at an exorbitant rate (like an MCA), and you can refi into a normal loan, it might still be beneficial even at the tail end. It really depends on the specifics; run the numbers or talk to a financial advisor.

Will refinancing hurt my credit or make it harder to get other financing?

In the short term, your credit report will show a new inquiry and a new account, and the old account being paid off. This might cause a small temporary dip in your personal credit score. But long term, if refinancing makes your debt easier to manage, it should improve your credit because you’ll have a better payment track record (missing payments hurts credit far more than having a new account). In terms of getting other financing: having a refinanced loan is usually seen as positive, because it often means your financial position is improved. However, you are still carrying debt – just structured differently. If you plan to seek a new loan for another purpose, lenders will look at your overall debt load. If refinancing significantly lowered that load or freed up cash flow, it could actually make it easier to get new financing (since your debt service ratios improve). So, refinancing shouldn’t hinder you from borrowing in the future; if anything, it can help, provided it strengthens your financial profile.

What does it cost to refinance – will I have to pay a lot upfront?

There will be some costs, but they can often be rolled into the new loan. Typical costs include loan origination or closing fees (maybe 1–3% of the loan), appraisal fees if property is involved (could be $2k–$4k for commercial appraisals), and any government-guarantee fees if it’s an SBA loan. You might also have minor fees like credit report or filing fees. If your current loan has a prepayment penalty, you’ll need to account for that too. Many lenders can structure the refinance so that these costs are added to the loan balance, meaning you don’t necessarily need a lot of cash out-of-pocket at closing – though doing so increases your loan amount slightly. It’s important to ask for a breakdown of all fees and compare that against your savings. At Liberty Franchise Lending, for example, we do a refi analysis for clients: “Here’s what you’ll pay in fees, here’s what you save in interest, net-net is it beneficial?” – often it is, but we make sure.

Can I refinance an SBA loan with another SBA loan?

The SBA has specific rules on this. Generally, you cannot refinance an existing SBA 7(a) loan into a new SBA 7(a) loan just to get a better rate/term – they discourage using one SBA loan to pay another in most cases. However, you can refinance an SBA loan with a non-SBA loan (like a conventional bank loan or line of credit) if that lender is willing. More interestingly, recent changes allow using an SBA 504 loan to refinance certain debts, including SBA 7(a) loans. So, if you have a 7(a) loan that primarily financed real estate or equipment, you might refinance it with a 504 to get a fixed low rate. There are eligibility criteria (the debt usually must be at least 6 months old and current on payments, etc.). It’s best to consult with a lender knowledgeable in SBA refinancing to see what’s possible in your scenario.

When is the best time to refinance my franchise loan?

A good time to refinance is when you can clearly benefit – for instance, if interest rates have dropped at least a couple percentage points below what you’re currently paying, or if your business has grown stronger (so you can qualify for a better loan than before). Many people also look at refinancing as their SBA loan’s variable rate starts rising (due to prime rate increases) – they might refinance to a fixed-rate product to lock it in. Also, if you’re about to face a balloon payment or your loan is maturing, that’s a critical time to refinance so you’re not caught without a way to pay off the balance. Essentially, keep an eye on market rates and your franchise’s financial health; if you see a chance to significantly save or reduce risk, that’s the time to explore refinancing.

Should I consider seller financing or other financing in addition to a bank loan?

Often, yes. For acquisitions, seller financing can be a great complement to a bank or SBA loan. For instance, a deal might be 70% bank loan, 20% seller-financed, 10% buyer down payment. Seller financing can show the lender that the seller has confidence in the business’s continued success (since the seller gets paid back over time). It can also reduce how much you need to borrow from the bank and how much you pay upfront. Besides seller financing, some franchisees tap into home equity loans or investor partners for a portion of the expansion cost. Every situation is unique – but blending financing sources can sometimes make a deal feasible if one source alone won’t cover everything. Just be cautious not to over-leverage and ensure you can handle the combined debt. Also, if using multiple financing sources, be transparent with all parties; lenders will want to know if there’s additional debt on the business.

How long does it take to get an expansion/acquisition loan approved?

It’s not as quick as a small loan. Generally, you should allow 60 to 90 days from start to finish for an SBA or bank loan for an acquisition or opening a new unit. The steps include application, providing lots of documentation (financial statements, tax returns, business plans, etc.), lender review, SBA approval if applicable, and then closing the loan (which might sync with closing the purchase of the business or signing of a lease). Sometimes it can be faster – if you have a strong banking relationship or all paperwork ready, you might close in under 45 days. Conversely, unexpected delays (appraisal issues, negotiations with the seller, etc.) can extend the timeline. It helps to start the financing process as early as possible once you’re serious about expansion, and to respond quickly to lender requests. Liberty Franchise Lending often coordinates closely among all parties to keep the process moving and cut down on wait times.

What collateral do I need for an expansion or acquisition loan?

The collateral will usually be the assets of the franchise business itself – things like equipment, furniture, fixtures, and any real estate being purchased. In an acquisition, you’re buying these assets and the lender will take a lien on them. If it’s expansion and involves equipment or property purchases, those serve as collateral. However, because franchise businesses often have a lot of intangible value (like the brand and customer base), lenders often require additional collateral. This could mean pledging your existing business assets or giving a lien on personal assets (like your home or other investments) to secure the loan. SBA loans require taking available collateral when possible. So, while the loan is primarily secured by the franchise business you’re funding, be prepared that you might have to fortify the collateral with personal guarantees and possibly personal property if the lender deems it necessary.

Can I get one loan to finance opening multiple new units at once?

Possibly, yes. Some lenders will structure a larger credit facility if you have a plan to open several units over a period of time – this is often called a “development line” or multi-unit financing. They might approve, say, $2 million for 4 new units, but disburse it in chunks as you open each one. However, this is typically offered to very experienced operators or strong concepts. More commonly, franchisees finance each new location with a separate loan when they’re ready to open that unit. That being said, if you know you want to do two back-to-back and you qualify, you can certainly discuss with your lender. They may incorporate it under one umbrella loan or give a commitment for the second loan if certain conditions (like the first store performing well) are met.

How much money do I need to put down to buy an existing franchise?

Most lenders expect buyers to invest some of their own capital in an acquisition. A common down payment is around 20% of the purchase price . For example, if you’re buying a franchise for $500,000, you might need about $100,000 of your own funds. Some SBA loans only require 10% down, but many deals end up higher. If the business has a lot of intangible value (goodwill), occasionally lenders might ask for even more equity to ensure the loan isn’t too high relative to hard assets. Remember, any seller financing (where the seller lets you pay part of the price over time) can sometimes count towards that down payment portion – effectively reducing how much cash you need upfront.

FAQs Archive - Liberty Franchise Lending

Should I refinance if I only have a year or two left on my franchise loan?
Categories: Refinancing▪
Will refinancing hurt my credit or make it harder to get other financing?
Categories: Refinancing▪
What does it cost to refinance – will I have to pay a lot upfront?
Categories: Refinancing▪
Can I refinance an SBA loan with another SBA loan?
Categories: Refinancing▪
When is the best time to refinance my franchise loan?
Categories: Refinancing▪
Should I consider seller financing or other financing in addition to a bank loan?
Categories: Acquisition Loans▪
How long does it take to get an expansion/acquisition loan approved?
Categories: Acquisition Loans▪
What collateral do I need for an expansion or acquisition loan?
Categories: Acquisition Loans▪
Can I get one loan to finance opening multiple new units at once?
Categories: Acquisition Loans▪
How much money do I need to put down to buy an existing franchise?
Categories: Acquisition Loans▪

Franchise Lending Resources

Should I refinance if I only have a year or two left on my franchise loan?

Will refinancing hurt my credit or make it harder to get other financing?

What does it cost to refinance – will I have to pay a lot upfront?

Can I refinance an SBA loan with another SBA loan?

When is the best time to refinance my franchise loan?

Should I consider seller financing or other financing in addition to a bank loan?

How long does it take to get an expansion/acquisition loan approved?

What collateral do I need for an expansion or acquisition loan?

Can I get one loan to finance opening multiple new units at once?

How much money do I need to put down to buy an existing franchise?

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