When an existing franchisee is considering expanding or a new franchisee is planning to open their first franchise business, various financing options are considered to select the most appropriate financing product(s). 

Many franchise businesses require unique equipment to operate their franchise. For example, a Signarama franchise requires sign making equipment to operate. In addition, most franchise businesses require outdoor and indoor signage, furniture, computer hardware & software, and POS systems to operate the business. This equipment can be financed using an equipment lease. 

The SBA recently changed the rules for SBA 7(a) loans up to $500,000 so the borrower’s real estate collateral is not required. One of our key SBA lending partners does NOT require real estate for collateral for SBA 7(a) loans under $500,000 AND they allow the borrower to combine an SBA loan with an equipment lease to finance their equipment which presents a rare opportunity that these two (2) debts financing products are compatible! 


Capital Leases – Lease to Own 

The main purpose of a capital lease is to finance the equipment purchase to preserve the owner’s working capital. Franchise owners can finance the purchase of their equipment needed to operate their business listed above. The down payment ranges up to 20% of the amount financed & documentation fees may range from $95 to $495. Repayment terms typically range from 36 months up to 60 months with a $1.00 or $100 end of term purchase option. All lease payments are tax deductible, so leases lower the business’s taxable income and, in turn, the business’s tax liability. All partners with more than 20% ownership are required to personally guarantee the equipment lease. The collateral for equipment leases is just the equipment being financed. 


SBA 7(a) Loans

Our key SBA lender will accept loan requests ranging from $250,000 up to $500,000 for start-ups and existing businesses with no personal collateral required to provide 3-6 months of working capital and construction financing. The typical equity injection required ranges from 15% to 20% so the project total for these loan requests can range from $300,000 up to $625,000. 

Standard SBA 7(a) loan approval requirements include, but are not limited to:

  • Good personal credit – typically 700+ credit score 
  • Sufficient liquid assets for the down payment plus some post close liquidity
  • Either industry experience or education or transferable professional skills
  • A business plan including financial projections reporting a debt coverage ratio in excess of 1.0. 

If the application is to finance a new location, an application can be submitted to prequalify the borrower. Once a location is identified and all project costs are determined, the loan will be submitted into underwriting to secure a commitment letter. 

The loan process typically will take up to 120 days to complete before the loan closes and the construction financing begins. Since the use of funds includes construction financing, an experienced general contractor is required and must be approved by the lender. The SBA lender makes progress payments directly to the construction and will also pay the fitness and non-fitness equipment invoices directly to the manufacturer or dealer. The working capital is paid directly to the borrower before the loan closes, so the borrower has sufficient working capital to pay bills while they are building their member base.  


The interest rate for SBA 7(a) loans is calculated starting with the prime rate as published in the Wall Street Journal which is currently 8.5% plus a risk premium up to 2.75% so the interest rate is currently no more than 11.25%. These are variable rate loans which adjust quarterly when the Fed Board of Governors decides to raise or lower the prime rate. The repayment term is 10 years if there is no real estate being financed and there is no pre-payment penalty so if the business is profitable (or if you win the lottery:), the loan can be prepaid to save interest expense. 






A common goal is to access capital using SBA loans and equipment leases to preserve your liquid assets. By securing debt financing, you will be preserving your capital, so I recommend you consider the return on your money when calculating the actual cost of financing. For example, if you are paying 12% for financing and earning 3% on your investments, your actual cost of financing is 9%.

The best part about this unique financing opportunity by combining an SBA 7(a) loan & equipment lease is that the collateral is your business assets… not your home … just your business assets! 


Marisol Cruz, COO
Business Finance Depot
Toll Free (800) 788-3884
Direct # (954) 613-6390