A walkthrough of what lenders commonly review in a franchise request, from the FDD to the startup budget and unit economics.
October 30, 2026
A franchise can feel like a safer path to ownership because the brand, training, and playbook already exist. Lenders see it a little differently. They review the franchisor as well as the buyer, and they test whether the numbers for this particular unit make sense in this particular location. Houston-area buyers who understand that two-part review can prepare a stronger request.
This guide walks through what lenders commonly review in a franchise financing request: the Franchise Disclosure Document, the franchisor's track record, the SBA Franchise Directory, territory and location, startup costs, and unit economics. Requirements vary by lender, and approval is never automatic.
Before a lender looks at your finances, it usually wants to understand the brand. A franchisor with a long record of healthy, profitable franchisees is a different credit story from a newer system with few open units. Lenders may ask for the documents below, and each lender decides what it needs.
Per SBA's Standard Operating Procedure (SOP 50 10) and the lender's policy (confirm the current version), 7(a) loans are made by approved lenders with an SBA guarantee. The SBA 7(a) loan overview covers common eligible purposes, and the SBA Franchise Directory is the place to start when checking a brand. Listing and eligibility must be verified with the lender and SBA, since a directory listing does not mean a loan is approved or that a unit will succeed.
A franchise loan request usually rests on a detailed project budget. The Item 7 estimate of initial investment in the FDD is a helpful starting point, but lenders often want a budget based on your actual location, bids, and lease terms. Common lines include the following.
Underwriters want to see whether one unit can carry its own debt. They compare the franchisor's performance information with your local assumptions for sales, labor, rent, royalties, and advertising fees. Royalties charged as a percentage of sales can reduce cash flow even when sales look strong, so projections should include them.
For example, suppose a buyer plans a single unit with a hypothetical startup budget of $40,000 for fees, $180,000 for buildout, $90,000 for equipment, $15,000 for opening inventory, $5,000 for training and travel, $60,000 for working capital, and $10,000 for contingency. The total is $400,000. If the buyer contributes $80,000 in cash, the financing request is $320,000. These numbers are hypothetical, and equity requirements vary, so ask the lender for the current minimum. The takeaway is that every line should tie to a quote, a franchisor estimate, or a stated assumption.
Program-level requirements are in SBA SOP 50 10 (check the current revision), and each lender also applies its own credit policy. Some lenders know certain franchise brands well, which can make the review smoother, while others may be less familiar with a given system.
1. Read the FDD with your advisors. Have a franchise attorney and a CPA review the document before you sign anything, and note questions about fees, territory, and obligations.
2. Talk to existing franchisees. The FDD lists current and former franchisees. Ask about sales, support, hours, and whether they would buy again.
3. Check the SBA Franchise Directory and your lender. Confirm the brand's status and ask the lender how it handles that franchisor.
4. Build the unit model. Project sales, labor, rent, royalties, and other fees monthly, and run a slower-than-expected case.
5. Assemble the project budget. List each startup cost with its source, plan your cash contribution, and keep a reserve for overruns.
Does being in the SBA Franchise Directory guarantee a loan?
No. A listing is a reference point that lenders may use in their review, but it does not mean a loan is approved. Verify listing and eligibility with the lender and SBA, and expect the lender to review your finances too.
What is Item 19 in the FDD?
It is the section where a franchisor may share financial performance information about existing units. Not every franchisor provides it, and lenders may ask how the figures were calculated and whether they fit your location.
Should I sign the franchise agreement before applying?
Talk with an attorney and the lender first. The timing of signatures, deposits, and lease commitments can affect your options, and it is easier to ask questions before you are committed.
What if the franchisor is new or has few units?
Some lenders review newer systems more closely, and some may be less comfortable with them. Strong franchisee references, clear unit economics, and a well-capitalized buyer can help the lender evaluate the request.
Franchise financing is a review of the brand, the location, and the buyer together. A buyer who has studied the FDD, spoken with franchisees, built a realistic budget, and checked the brand's status with the lender gives the underwriter more to work with. A thorough file cannot guarantee approval, but it helps the lender evaluate your request.
If you are considering a franchise purchase, contact SBA Loan Guy to talk through your project budget and lender fit before you submit an application.
This article is general information only. It is not legal, tax, accounting or financial advice. SBA Loan Guy is not a lender and is not affiliated with or endorsed by the U.S. Small Business Administration. Program rules, eligibility and requirements change, so confirm current details with a licensed lender and SBA.gov before you make a decision.
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