If you've been inspired to venture into business or franchise ownership, you're in the right place. In this blog post, we'll walk you through the essential steps and documents required to qualify for SBA 7a financing, whether buying an existing business or starting a franchise from scratch.

The Necessary Documentation

SBA 7a financing is a viable option for those looking to invest in a business or franchise. Here's a breakdown of the essential documents you'll need to prepare:

SBA Forms

1. SBA Form 413 (Personal Financial Statement): This form collects your personal financial information, acting as an application for the loan.
2. SBA Form 1919 (Personal Information): Similar to a job application, this form gathers personal details required for the loan process.

Financial Records

3. Tax Returns: You'll need to provide your personal tax returns for the last three years. These documents demonstrate your financial history and ability to manage finances.
4. Bank Statements: Bank statements offer insights into your financial transactions and account activity, providing lenders with a clearer picture of your financial health.
5. Resume: Your professional background and qualifications are an important part of your application. It helps lenders understand your expertise in the industry.

Franchise-Specific Requirements

If you plan to buy a franchise, there are additional documents to consider:

• Franchise Disclosure Document: The franchise disclosure document provides crucial information about the franchise, including the number of units, operational details, and financial data. It's an essential resource for making an informed decision.
• Three Years of Projections: For franchise startups, you'll need to create financial projections for the first three years of operation. These projections help lenders evaluate the business's potential for success.

Buying an Existing Business

If you're acquiring an existing business, you'll need to provide:

• Three Years of Seller's Tax Returns: Examining the seller's tax returns helps lenders assess the business's historical financial performance.
• Year-to-Date Financial Statement: This statement provides an up-to-date snapshot of the business's financial status, offering insight into its current health.

Additional Steps in the Process

As you progress through the SBA 7a financing process, you may encounter additional requirements:

• Accounts Receivable, Inventory, and Equipment: You may need to provide information about these assets, typically after receiving a term sheet from the lender.

Franchise Financing Considerations

Financing a franchise can be different from traditional business financing. Here are some important factors to consider:

Franchise Size Matters

• Well-Established Franchises: Financing is often easier for franchises with 50 or more units. Lenders view them as less risky investments.
• Franchises with 10 or More Units: These franchises are also more attractive to lenders, though smaller franchises are still considered financible.
• New or Smaller Franchises: While they may face more challenges, financing is still possible. The key is to understand the franchise's potential and create solid financial projections and business plans.

Existing Businesses Offer Advantages

• Cash-Flowing Businesses: Banks are more likely to lend higher proceeds for businesses with a proven cash flow. This applies to both franchise and non-franchise businesses.
• Financing Percentage: For franchises, it's possible to secure financing for 80 to 90 percent of the acquisition cost.
• Seller Financing: In business acquisitions, sellers may offer a “carryback,” where they provide some of the financing, making the acquisition process more manageable.

The Next Step

If you're ready to explore SBA financing, whether it's SBA 7a or 504, or unsure where to start with your business venture, we're here to help. Our experienced team can guide you through the loan application process, regardless of whether you're starting a new business, purchasing an existing one, buying a franchise, or expanding your current operations.

Feel free to book a call with us to dive deeper into the details and gain clarity on your financing options. We look forward to assisting you in your journey to business or franchise ownership.

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