Buying a Business

Understanding SBA-Approved Franchises | Becoming a Business Owner

Many aspiring business owners are exploring SBA-approved franchises, as this type of investment can provide a safe and secure way to become a business owner while leveraging the strengths of an established franchise system. Understanding what SBA-approved franchises involve, however, is key – and that’s why we’ve created this guide!

We'll cover what exactly is an SBA-approved franchise and how can aspiring small business owners benefit from them. In this guide, we will delve into the specifics of an SBA-approved franchise, its merits, and how it can help aspiring small business owners start their entrepreneurial journey.

What is an SBA-approved franchise?

An SBA-approved franchise is a business that has met the criteria set by the SBA for franchising businesses that can receive SBA loans. The SBA neither approves nor disapproves individual franchises but rather provides a list of franchises that meet their criteria. If a franchise is on the SBA-approved list, it becomes easier for small business owners to get funding for that franchise brand.

the friday fund

What is a Franchise?

A franchise is a type of business structure where an individual (the franchisee) purchases the rights to use an already established brand and business model from another company (the franchisor). This allows the franchisee to operate their own business under the guidance and rules provided by the franchisor.

Franchise owners are typically provided with support in areas such as marketing, training, and ongoing operations. This can be an attractive option for entrepreneurs who want to own their own business but also want the support and security of an established brand. It is important to thoroughly research and understand the terms and obligations of a franchise agreement before making a commitment.

Benefits of an SBA-Approved Franchise

An SBA-approved franchise is an excellent option for small business owners seeking to start or expand a business. It offers numerous benefits, such as reduced borrowing costs, longer loan terms, and access to capital that would otherwise be difficult to obtain. Additionally, SBA-approved franchises have been vetted by the SBA, ensuring that they meet professional and financial standards. As such, small business owners can have confidence in the franchise's ability to operate successfully.

1. Lower failure rate

The Small Business Administration (SBA) is a government agency that provides support to small businesses in the United States. One way that the SBA supports small businesses is by guaranteeing loans from participating lenders. In order to participate in the SBA loan program, franchises must meet certain requirements, including being owned and operated by a small business.

2. Easier to finance

Because SBA-approved franchises have a lower failure rate, they are also easier to finance. Banks and other lenders are more willing to provide financing to businesses with a proven track record of success, and SBA approval is one way to demonstrate this success.

3. Access to government contracts

Another benefit of being an SBA-approved franchise is that you may have access to government contracts. The SBA sets aside a certain percentage of government contracts for small businesses, and being an SBA-approved franchise can help you to qualify for these contracts.

4. Brand recognition

Another benefit of buying an SBA-approved franchise is that you will be able to leverage the brand recognition of the franchisor. This can be extremely helpful in terms of marketing and advertising, as potential customers will already be familiar with the franchisor and what they have to offer.

5. Support from the franchisor

Finally, when you buy an SBA-approved franchise, you will also have access to support from the franchisor. This support can take many different forms, but it typically includes things like training and marketing assistance. Having this support can be extremely helpful in ensuring that your franchise is successful.

How to Find an SBA-Approved Franchise

To find an SBA-approved franchise, small business owners should start by visiting the SBA website. The Administration provides a list of pre-approved franchises that can be funded using SBA loans. Alternatively, small business owners can conduct their research and check if their franchisor meets the SBA's criteria.

Common Franchise Brands That are SBA-Approved:

Among the SBA-approved franchises are popular fitness studios, essential mechanic shops, and well-known fast food chains. Whether you're passionate about fitness, cars, or food, there are plenty of options to choose from. With the backing of the SBA, now is the perfect time to start your franchise journey.

1. Dunkin' Donuts

Dunkin' Donuts is a coffee and donut shop chain that was founded in 1950 in Quincy, Massachusetts. The company has over 11,000 locations worldwide and is the largest coffee and donut shop chain in the world. Dunkin' Donuts is SBA-approved and offers franchising opportunities to qualified individuals.

2. Anytime Fitness

Anytime Fitness is a chain of fitness centers that was founded in 2002 in Minneapolis, Minnesota. The company operates more than 4,000 franchises in 30 countries around the world. Anytime Fitness is a popular franchise brand for those looking to get into the fitness industry, with low start-up costs and a proven business model.

3. Jiffy Lube 

Jiffy Lube is an automotive maintenance and repair shop chain that was founded in 1979. The company has over 2,200 locations in North America. Jiffy Lube is one of the most popular franchise brands in the world.

4. Ace Hardware

Ace Hardware is a chain of hardware stores that was founded in 1924 in Chicago, Illinois. The company operates more than 4,700 stores in 60 countries around the world. Ace Hardware is one of the most popular franchise brands in the United States, with more than 2,800 franchise locations.

5. Buffalo Wild Wings

Buffalo Wild Wings is a casual dining restaurant chain that specializes in chicken wings and sports entertainment. The company was founded in 1982 in Columbus, Ohio, and has over 1,200 locations worldwide. Buffalo Wild Wings is SBA-approved and offers franchising opportunities to qualified individuals.

Requirements for an SBA-Approved Franchise

While the SBA does not outrightly approve or disapprove individual franchises, the franchisor must meet the SBA's criteria for the franchise to be included in their approved franchises list. The criteria include a proven business model, at least two years of operating experience, and a good financial track record. Moreover, the franchisor must demonstrate its ability to support its franchisees through training programs and other support mechanisms.

SBA Loans to Jumpstart Your Franchising Journey

If you're considering franchising as a business venture, securing the necessary capital can be a significant hurdle. Fortunately, the Small Business Administration (SBA) offers loans tailored to the needs of franchisees: the SBA 7a loan and the SBA 504 loan.

The SBA 7(a) loan is the most common form of SBA loan, and it can be used for a wide variety of purposes, including leasehold improvements, equipment purchases, and working capital. This loan provides up to $5 million in funding and has a repayment term of up to 25 years.

On the other hand, the SBA 504 loan is specifically designed for real estate purchases and improvements. This loan provides up to $5.5 million in funding and has a repayment term of up to 25 years. Regardless of which option you choose, both SBA loans can be used to jumpstart your franchising journey with flexible terms and affordable rates.

New call-to-action

Start Your Franchising Journey

An SBA-approved franchise can be the solution to financing challenges for small business owners seeking to grow their businesses. By meeting the SBA’s criteria, franchises on their approved list are backstopped by the SBA, making it easier for small business owners to obtain funding. Additionally, SBA-approved franchises offer numerous business opportunities, making it a viable option for small business owners seeking to start or expand a business.

If you are considering buying a franchise, check if it's on the SBA-approved list or meets the SBA's criteria to access funding benefits. Subscribe to our newsletter to get the latest tips and growth resources to support you on your entrepreneurial journey.