What Are The Best Franchises to Start With an SBA 7(a) Loan?

While you might already know that SBA loans are available to many franchises, you might not know how they stack up against each other. In this article, we’ll take a look at some of the most successful franchises that can be funded with SBA loans and compare their performance based on their loan default rates.

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SBA 7(a) Loans for Landscaping Companies

There are nearly 500,000 landscaping businesses in the United States, producing more than $60 billion in revenue each year and employing almost a million people. From 2006-2015, landscaping firms around the U.S. took out more than 8,000 SBA 7(a) loans, with a combined loan volume of almost $1 billion, and an average loan size of nearly $120,000. If you’re looking for a loan for your landscaping business, SBA 7(a) financing can be a great option, as it typically has lower credit score requirements than comparable bank loans, and can be used for equipment, working capital, and commercial real estate financing.

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SBA 7(a) Loans for Beauty Salons

Right now, there are about 82,000 beauty salons in the U.S., generating approximately $20 billion in revenue each year. From 2006-2015, beauty salons across the country took out more than 9,000 SBA 7(a) loans, with a total loan amount of more than $1 billion, and an average loan size of around $110,000. 7(a) loans are attractive to salon owners for a variety of reasons, including the fact that they can be used for both working capital, equipment, and commercial real estate, and that they can be easier to acquire than traditional bank loans.

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What is the Required Debt Service Coverage Ratio (DSCR) for SBA 7(a) Loans?

Debt service coverage ratio, or DSCR, is one of the most important factors lenders look at when approving a loan. DSCR is calculated by dividing a business’s net operating income by their total debt service. For SBA 7(a) financing, most lenders want a borrower to have a DSCR of 1.25x or more.

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Getting 100% Commercial Real Estate Financing With An SBA 7(a) Loan

While most forms of SBA 7(a) loans require at least 5-10% down, some lenders are now offering 100% commercial property financing with SBA 7(a) loans. That means that, if they qualify, a borrower doesn’t have to put anything down to acquire a commercial property with a 7(a) loan.

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Can You Use a Gift as a Down Payment on an SBA 7(a) Loan?

Fortunately for SBA loan borrowers, there’s nothing preventing you from using a gift as a down payment on an SBA 7(a) loan. In most cases, however, the gift must be a from a family member. Otherwise, the lender may be concerned that the gift is actually a loan in disguise— and, that it might have undisclosed terms that could actually hinder a borrower’s repayment of their SBA 7(a) loan.

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SBA 7(a) Loans for Dental Labs

Dental labs are an approximately $32 billion global industry— and the market is growing larger each year with the increase in oral diseases and a greater need for dental prosthetics for older patients. If you own or operate a dental lab, and you’re looking for a source of financing to expand your business, acquire a competitor, or even refinance your business debt, getting SBA financing might be one of your best options.

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SBA Loans vs. Conventional Loans: What's the Difference?

When it comes to getting financing for your small business, one of the biggest choices you’ll have to make is whether to go with an SBA loan or a conventional loan. Conventional, non-SBA loans may provide larger loan amounts, and can sometimes have lower interest rates than their SBA counterparts. However, conventional loans can be much more difficult to qualify for than SBA loans, often requiring very high personal and business credit scores.

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SBA 7(a) Loans for Builders and Construction Companies

With more than 650,000 construction firms in the U.S. building more than $1 trillion of buildings each year, it’s never been a better time to be in the construction industry. If you’re interested in expanding a construction company that you currently own, acquiring an existing construction business, or even buying out a partner in your construction firm, an SBA loan like the SBA 7(a) loan may be able to help.

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Getting an SBA 7(a) Loan to Buy Out a Partner

If you run a business with one or more partners, there may come a day when you want to buy one or more of them out. You might simply have different goals, or the partner may want to retire, move to a new location, or shift their career into a new industry altogether. But, whatever the reason, buying out a partner can be expensive proposition— and if you don’t have the funds to do it, you might want to look into an SBA 7(a) loan.

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SBA 7(a) Loans for Manufacturers

In the United States, the manufacturing industry employs more than 12 million people— and produces nearly 20% of all the world’s goods. If you own and operate a manufacturing company, and you want funds to expand your firm, build a new headquarters, acquire a competitor, or even refinance your business’s debt, an SBA loan like the SBA 7(a) loan could be a fantastic option.

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How Does the SBA Define a Small Business?

Due to its mission, the SBA only guarantees loans to small businesses— but what is a “small business”? Well, according to the SBA, a small businesses have a maximum of anywhere between 250 and 1500 employees— all depending on the specific industry the business is in. Additionally, businesses have revenue limits that they must not exceed if they want to qualify for SBA financing. In general, companies with more than 1500 employees are not eligible for SBA loans.

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