Term Loans for Franchise Owners: Faster Funding for Multi-Unit Expansion

Beyond SBA: When Term Loans Make Sense

While SBA loans dominate franchise financing, conventional term loans offer advantages in specific situations: faster approval, simpler processes, and flexibility that SBA rules don't allow.

For established franchise operators with strong financials, term loans can accelerate growth beyond what SBA timelines permit.

When to Choose Term Loans Over SBA

• Speed is critical: Opportunity won't wait for 60-90 day SBA process
• Smaller amounts: Under $150K may not justify SBA complexity
• Strong financials: You qualify for competitive conventional rates
• Non-standard uses: SBA restrictions don't fit your needs
• Repeat borrowing: Faster process for established banking relationships

Term Loan Options for Franchises

Franchise-Specialized Lenders

Several lenders specialize in franchise financing, understanding the unique dynamics of franchise businesses. These lenders often have relationships with major franchisors and experience with specific franchise financial structures.

Franchise-specialized lenders may offer faster approval, higher loan amounts based on franchise performance benchmarks, and terms tailored to franchise cash flow patterns.

Multi-Unit Growth Financing

Established multi-unit operators often outgrow SBA limitations. Term loans can finance rapid expansion, providing capital for multiple new units simultaneously when SBA's pace would be too slow.

Lenders view successful multi-unit operators favorably—proven track record, diversified revenue across locations, and demonstrated management capability.

Renovation and Remodel Financing

Franchisors periodically require location updates to maintain brand standards. Term loans provide straightforward financing for these required renovations without SBA complexity.

If you're facing mandatory remodel requirements across multiple locations, a term loan covering all renovations may be more efficient than separate SBA applications.

Qualification Requirements

Term loan qualification for franchises typically requires 2+ years operating history with the franchise, profitable operations at existing locations, personal credit score of 650+ (700+ for best rates), and debt service coverage of 1.25x or higher.

Newer franchise owners or those with limited track record may still need SBA loans for the guarantee protection.

Costs vs. SBA Comparison

Term loans typically carry higher interest rates than SBA loans—often 8-15% vs. SBA's 10-13%. However, the faster process and reduced documentation requirements may justify the premium for time-sensitive opportunities.

Calculate total cost including the value of speed. If a faster loan captures a prime location that SBA timing would miss, the higher rate may be worthwhile.

Building Banking Relationships

Term loans often come through banking relationships. Franchise owners should establish relationships with banks that understand franchising, maintain business accounts with potential lenders, and build credit history through smaller facilities before needing major financing.

Strong banking relationships enable faster, more favorable financing when growth opportunities arise.