Is the SBA Looking at Franchise Start-Up Loans Differently?
Yes, franchise start-up loans have been more difficult. Lenders are looking more closely at the debt to income ratios to be 1.25 or higher. SBA lenders are reviewing the history and default rate of the franchise system. Lender’s want to know how well the industry is doing. They even go as far as looking at their own loan portfolio to see if lending in certain states is a problem.
Since franchise start-up loans (less risky than a non-franchise start-up but riskier than real estate, expansion or acquisition loans) need time to become profitable, lenders want to be sure borrowers have another source of outside income and plenty of reserve during the new owner transition.