Hi, I’m Beau Eckstein — franchise consultant, commercial mortgage advisor, and your Business Ownership Coach | Investor Financing Podcast host. In this post I break down, step-by-step, how lenders determine the reserves required for SBA loan approval on a franchise startup. If you're preparing to buy a franchise and need SBA financing, understanding post-close liquidity rules will save you time, help set realistic expectations, and increase your odds of loan approval.
Why lenders require post-close reserves
Lenders want to make sure you won’t drain the business the moment it starts operating. Most SBA lenders — especially those that handle larger, franchise-focused loans — require you to have a minimum level of liquidity remaining after closing the loan and making your down payment. This is commonly referred to as “post-close liquidity” or reserves.
The typical benchmark many banks use is 10% post-close liquidity. That means once your total project cost has been paid for (including down payment and funded working capital), you should still have about 10% of that total project cost sitting in accessible personal accounts. The rationale is straightforward: the bank wants assurance you can cover living expenses and unexpected personal costs without tapping into the business’s operating capital in the early months.
As your Business Ownership Coach | Investor Financing Podcast, I always emphasize that these reserves are not a punitive measure — they are a risk-management tool that protects you and the lender. If a family emergency or a temporary slow start occurs, having reserves prevents you from using business cash to cover personal obligations and jeopardizing the business’s survival.
How to calculate the reserves: a simple example
Let’s make this concrete with a common scenario. If your total project cost is $300,000 — that includes equipment, leasehold improvements, franchise fee, and working capital — many lenders will expect you to have 10% post-close liquidity. That equates to $30,000.
Calculation steps:
- Confirm total project cost. Example: $300,000.
- Multiply by required post-close liquidity percentage. Example: 10% of $300,000 = $30,000.
- Ensure the $30,000 remains in accessible accounts after your down payment and closing costs are paid.
So, if you're putting 10% down (often $30,000) and borrowing the rest, you would still want an additional $30,000 in liquid assets after closing if your lender requires 10% post-close liquidity. This means your total cash needed at closing could be higher than the down payment alone — you must account for both the down payment and the reserves the lender expects you to retain.
Keep in mind that not all SBA products treat reserves identically. Some express or small-ticket SBA loans have more flexible criteria and might not enforce a hard 10% post-close rule. Larger lenders that underwrite loans in the $300,000+ range typically apply the 10% expectation consistently. As your Business Ownership Coach | Investor Financing Podcast, I recommend preparing to meet the stricter threshold so you’re ready for lenders who enforce it.
Which lenders are stricter — and when exceptions apply
SBA lending is delivered through a variety of lenders, and underwriting guidelines can vary. Here’s a quick breakdown:
- Large franchise lenders: Typically strict. Expect a 10% post-close liquidity requirement for loans around $300,000 and above.
- Regional and community banks: May have some flexibility but often follow similar expectations to larger lenders.
- Express or small-ticket SBA products: Often more lenient on hard reserve rules. They may approve loans with lower or undocumented post-close liquidity depending on other compensating strengths (e.g., credit score, collateral, experience).
While exceptions exist, don’t rely on getting one. Treat the 10% post-close liquidity as the baseline when you prepare your financing plan. That practical approach keeps options open with lenders that strictly enforce this requirement and demonstrates your financial planning discipline during underwriting review.
As the Business Ownership Coach | Investor Financing Podcast, I frequently see borrowers surprised because they planned only for the down payment and initial working capital without accounting for post-close reserves. That gap can make or break approval timing and borrower stress during startup.
Photo by Jakub Żerdzicki on Unsplash
Practical tips to build and show your reserves to underwriters
Here are actionable steps to ensure your reserves are acceptable to SBA lenders:
- Keep funds documented and liquid: Lenders want to see bank statements. Retirement accounts are sometimes acceptable but less preferred than checking or savings accounts that are readily accessible.
- Avoid last-minute transfers: Large transfers into your account right before submission can trigger questions. Lenders expect stability over a 60–90 day period in many cases.
- Calculate personal monthly burn rate: Prepare a simple monthly personal budget showing how long your reserves will cover living expenses. This makes the reserve requirement tangible for the lender.
- Show working capital separately: Distinguish what portion of cash is for business operating needs versus personal reserves. Lenders review both.
- Explain any exceptions: If you have nontraditional liquidity (like a shareholder loan or a spelled-out personal line of credit), document it and explain how it’ll be accessed.
- Bring advisors into the process: I’m not a CPA or an attorney, but as your Business Ownership Coach | Investor Financing Podcast host I recommend getting a CPA and an attorney involved where needed to validate your financials and taxes for underwriting.
These steps aren’t just for underwriting — they also make your own life easier in the startup months. Knowing you have a buffer keeps you focused on growing the business instead of scrambling to pay rent or family bills.
Common borrower questions and my answers
Q: “Do all lenders require exactly 10%?”
A: No. But many franchise lenders and larger SBA lenders use 10% as their rule of thumb. Smaller SBA express products sometimes relax that requirement. Treat 10% as the planning baseline.
Q: “Can reserves be in retirement accounts?”
A: Sometimes, but liquid assets are preferred. If you rely on retirement funds, be ready to explain access and penalties, and expect lenders to discount illiquid accounts.
Q: “What if I don’t have 10% post-close liquidity?”
A: Explore options: increase your cash raise, use investor equity, consider a lower-cost franchise, or look for lenders that underwrite smaller SBA loans with more flexibility. Above all, be transparent with your lender early so you can co-create a path forward.
When you work with me as a Business Ownership Coach | Investor Financing Podcast resource, we map this out early so financing surprises don’t derail your timeline.
Next steps: resources and where to get help
Photo by Giorgio Tomassetti on Unsplash
If you want help applying this to your franchise opportunity, start by calculating your total project cost and multiplying by 10% to see the reserve target. Then document your current liquid assets and get them organized in account statements.
I run free Business Ownership Summit events and workshops where we cover SBA financing, tax strategies (with CPAs), and practical steps to building a legacy for your family. As your Business Ownership Coach | Investor Financing Podcast host, I encourage you to attend these events and get the personalized guidance that will speed up your approval process.
When you're ready, bring the following to a lender or a consultant:
- Detailed total project cost worksheet
- Personal and business bank statements (last 60–90 days)
- Personal expense budget showing monthly burn rate
- Any existing business plans or projections for the franchise
Conclusion: plan for 10% and protect your business
To summarize: most SBA lenders that underwrite franchise loans expect you to maintain roughly 10% post-close liquidity. For a $300,000 project, that means setting aside about $30,000 after you close. Some express SBA products may be more flexible, but planning for 10% will keep your financing options open and reduce stress during startup.
As your Business Ownership Coach | Investor Financing Podcast host, I’ve seen how properly planning for reserves not only improves loan approval odds but also protects entrepreneurs during the fragile early months of business ownership. If you want help running the numbers or preparing your documentation, book a call and join one of our events. I’ll see you at the next summit and I’m excited to help you build and protect your business.