Have questions about getting a franchise loan?
We’ve got answers. Below are some of the most common questions we hear from prospective borrowers. Don’t see your question? Just reach out – we’re always here to help.
Yes! We serve clients in all 50 states. Liberty Franchise Lending is licensed and equipped to provide franchise financing nationwide across the United States. So whether your franchise is in Texas, California, New York, Florida – you name it – we can help. We understand local market nuances but provide the same high-quality service no matter where you are. Our process is largely remote, via phone and online, which makes it convenient for you.
Franchise loan proceeds can typically be used for all the major expenses involved in starting or running your franchise. This includes: franchise license fees, location costs (like leasing a storefront or building and doing construction build-out), equipment and machinery, inventory stock, working capital to cover payroll/operational expenses until the business breaks even, marketing and grand opening expenses, and even refinancing existing business debt. Different loan types have different rules (for example, SBA 7(a) loans are very flexible on use of funds, whereas an equipment loan must be used to buy equipment). We’ll ensure your loan covers everything you need and complies with the lender’s guidelines.
We are a franchise financing specialist that operates as a lender and strategic broker. What that means is: in some cases we may fund loans directly, and in other cases we connect you with one of our trusted lending partners or programs best suited to your needs. Either way, you’ll work closely with us from start to finish. We handle the coordination with the actual funding source behind the scenes. This hybrid approach allows us to offer you more options and always get you the most competitive terms available. There’s no extra cost to you for this service – we’re compensated by the lenders, or through standard loan fees, not by charging our clients expensive consulting fees.
Yes, that’s one of our specialties. Whether you want to open a second (or tenth) location, purchase an existing franchise unit, or remodel your current store, we have loan programs for you. Expansion loans or acquisition loans can be structured based on the profitability of your current operations and the projected returns of the new unit. We understand the multi-unit growth strategy and can often arrange financing that leverages the success of your existing franchises. Many of our repeat clients are growing franchisees who come back to us as they expand their portfolio.
Absolutely. We work with many first-time franchise owners. Lenders will typically look at your financial background (credit score, net worth, etc.) and the strength of your franchise brand and business plan. Thanks to our experience, we help newcomers prepare strong loan applications. Programs like SBA loans are designed to help new entrepreneurs launch businesses, and we’ll guide you in meeting the requirements. You do not need prior business ownership experience – franchising often provides training and a proven model, which lenders recognize. If you’re excited about a franchise opportunity, we’re here to help you secure the funding to get it off the ground.
We offer all major franchise financing options, including SBA 7(a) loans, SBA 504 loans, conventional term loans, equipment financing, working capital loans, expansion loans, and refinancing. Essentially, if it’s a loan a franchisee might need, we can likely provide it. Visit our Loan Programs page for details on each option.
You’ll apply through an SBA-approved lender (not directly to the SBA). Many banks and specialized finance companies offer SBA loans. The application will involve detailed paperwork – franchise agreement, financial statements, tax returns, business plan, etc. It’s wise to work with a lender experienced in franchise lending. At Liberty Franchise Lending, we assist borrowers in preparing a complete SBA loan package and connect you with SBA preferred lending partners. This guidance can significantly improve your chances of approval. To start, you usually have an initial consultation or pre-qualification, then fill out the lender’s SBA loan application forms and provide documentation. The lender will handle submitting the loan to SBA for approval once they underwrite it.
Absolutely. SBA 7(a) loans can be used for expansion, whether that means opening a second (or third, etc.) location or buying out another franchisee’s store. The process is similar – you’d show the costs of expansion or the purchase price of the existing unit. In fact, expanding with an SBA loan once your first location is doing well is a common growth strategy. Just remember that your total SBA loans outstanding can’t exceed the $5 million cap, so very large multi-unit expansions might need to consider alternative financing once you hit that ceiling.
It can vary, but generally 10%–20% of the total project cost is expected as your equity contribution. If you’re opening a new unit, the franchisor may require a certain net worth or liquid capital anyway, which overlaps with this. For purchasing an existing franchise (business acquisition), 7(a) loans officially require at least 10% equity injection; in practice lenders often like to see around 20% from the buyer. Sometimes, part of this can be a seller financing note (for an acquisition) if the seller keeps some skin in the game. Always check with your lender on the specific down payment needed for your situation.
SBA loans do not require collateral up to certain amounts (loans under $25,000 have no collateral requirement, for example). For larger loans, the SBA says the lender must take collateral when available – which often means pledging your business assets like equipment, and possibly personal real estate if the loan is substantial. However, the SBA will not decline a loan solely due to lack of collateral as long as other factors are strong. So, if you don’t have a house to pledge, but your franchise projections and credit are good, you could still get the loan. Just expect to sign a personal guarantee regardless.
It’s typically not fast – often about 2 to 3 months from application to funding. The process involves application, document collection, lender underwriting, SBA approval, and closing. Working with experienced SBA lenders (like Liberty Franchise Lending’s partner banks) can help streamline this timeline. In some cases, SBA Express loans (for smaller amounts) may fund faster, potentially in a few weeks, but for larger loans expect a few months.
Yes. SBA 7(a) loans are commonly used to fund new franchise locations. You’ll need to meet the lender’s qualifications (good credit, some down payment, etc.) and the franchisor must be SBA-approved. Many first-time franchise owners use SBA loans to cover initial franchise fees, build-out, equipment, and opening working capital all in one package.
Often, yes. Many lenders will finance used equipment, though the equipment usually needs to be reasonably new (for example, less than 5–7 years old) and coming from a reputable vendor or seller. The lender may finance a smaller percentage of the cost for used items to account for lower value. The interest rate on used equipment financing might be slightly higher, and they may require an appraisal or inspection. But if you’re buying good quality used franchise equipment at a lower price, financing it can be a smart way to save money. Just check with lenders on any additional conditions for used assets.
If the equipment has issues, it’s still your responsibility to continue paying the loan. Warranty or insurance can cover repair/replacement costs depending on the situation. If the item is under warranty, the manufacturer will fix or replace it, but the loan remains in effect regardless. For equipment that’s mission-critical, it’s wise to have insurance or a service plan. In a worst-case scenario, if equipment becomes unusable, you might talk to the lender – but they typically still expect repayment, since the loan was for that purchase. This is why financing should ideally be shorter or equal to the useful life. Some franchise owners proactively replace equipment near end-of-life and may even finance the new replacement while still paying off the old one if needed, but that requires careful cash flow management.
Equipment financing is relatively quick. If you have your quotes and information ready, approvals can sometimes happen in a matter of days. We’ve seen franchise clients get an approval in 48–72 hours for simpler deals. Funding can follow shortly after, once documentation is signed and any down payment made. In general, expect anywhere from a few days up to 2–3 weeks to have the funds or vendor payment in place. This is much faster than something like an SBA loan. Many lenders offer expedited programs for financing under certain amounts (like “application-only” approvals for loans up to $100K or more, which speeds things up).
It depends on your situation. With a loan, you own the equipment (once the loan is paid) and you can usually sell it or continue using it beyond the loan term. Loans make sense if the equipment has a long life and you want to build equity in it. Leases are like renting – they might have lower monthly payments and often allow easier upgrades to new models. A lease might be smart if the equipment could become obsolete quickly or if you want to preserve capital. However, leases can have higher effective interest rates and you don’t build ownership (unless it’s a lease-to-own structure). Many franchisees use loans for core long-lasting equipment, and leases for ancillary or short-life tech. Evaluating the total cost of each option is key.
Yes, it’s possible. Many equipment financing companies will work with startups, especially if it’s a franchised business with a strong brand. They will rely more heavily on your personal credit and the value of the equipment. You may need to sign a personal guarantee and, in some cases, provide a down payment if you’re brand new. Working with a lender that has experience financing new franchise locations (for example, through Liberty Franchise Lending’s network) can improve your chances.
A Merchant Cash Advance (MCA) is a financing option where you get a lump sum in exchange for a percentage of your daily credit card or sales receipts until a fixed amount is repaid. They are very fast and easy to get (even with lower credit), and many restaurants and retail franchises have used them. However, they are one of the most expensive forms of capital – the equivalent APR can be extremely high. They also take a cut of sales daily, which can be painful for cash flow. MCAs might be a last resort if you can’t qualify for other loans and you have urgent needs. We usually recommend exploring alternatives (like short-term loans or lines of credit) before resorting to an MCA. If you do use an MCA, have a clear plan to get out of it and try not to re-borrow repeatedly.
It’s tougher, but not impossible. Traditional working capital lenders usually want some operating history (at least a few months of revenue). If you’re a brand new franchise and need working capital, you might lean towards an SBA loan or personal financing (like a personal loan or borrowing against home equity) to cover initial working capital. Some franchisors also offer financing help or deferred payment on certain fees to ease the burden. Once you have, say, 6 months of sales under your belt, you’ll find more lenders willing to offer working capital loans. Also, if you have strong personal credit, you could get a business credit card or a personal loan to inject working capital in the very early stages, then possibly refinance that later with a business loan once the franchise is up and running.
A business line of credit is a revolving account that you can draw from as needed up to a limit, repay, and draw again. It’s very flexible and you only pay interest on the amount you use. A working capital loan (term loan) is a lump sum you borrow once and repay over a fixed schedule. Lines of credit are great for an ongoing cushion or repeated cash needs; loans are better for one-time needs or specific events. For example, if you want a safety net for unpredictable expenses, a line of credit is handy. If you have a planned expense (like a one-time bulk inventory purchase), a short-term loan might do the job. Many franchise owners set up a line of credit for general working capital and only resort to term loans if the line is insufficient or if they need extra beyond the credit line.
Generally, no specific collateral. Working capital loans are usually unsecured, meaning you don’t have to pledge a particular asset like property or equipment. The lender might file a UCC lien on your business assets (a blanket lien) as a form of security, but that’s not quite the same as requiring hard collateral up front. The most important “collateral” in a sense is your franchise’s cash flow – lenders give money based on your ability to generate revenue. Of course, if you do have assets, you might get better terms by offering them, but it’s often not mandatory for these types of loans.
Many working capital lenders pride themselves on speed. You can often complete an online application in minutes and get a decision the same day or within 24 hours. Funding can occur in a day or two after approval, especially for loans under a certain threshold (like $100k). At Liberty Franchise Lending, we’ve helped franchisees secure short-term financing in under a week from initial request to funds in the bank. Banks might take a bit longer (maybe a couple of weeks for a line of credit), but alternative fintech lenders move very fast to provide cash when you need it.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
