What the lender actually checks (in order)
Pre-approval is a four-gate process. You get killed at any one of them. The math above covers gate 3 (the most common failure point).
- • Gate 1 — Personal credit: 680+ FICO is the practical floor for SBA Preferred Lenders.
- • Gate 2 — Liquidity: 10–20% down PLUS 6 months of personal living expenses in reserve.
- • Gate 3 — DSCR: year-1 projected cash flow ≥ 1.25× annual debt service. This is the one most deals fail.
- • Gate 4 — Industry experience: 'transferable management skills' — not always direct, but plausible.
Why the rate looks high vs a mortgage
SBA 7(a) rates are Prime + 1.5% to Prime + 4.75% depending on loan size. With Prime at ~7.75% in 2026, that's 9.25–12.5%. It's higher than a mortgage because there's no collateral comparable to a house — the SBA guarantees 75% of the loan, but the bank still wants margin for the risk. Rates are variable (adjust quarterly) on most loans, so model a 2-point stress test before signing.
10 years vs 25 years — when each applies
If the purchase includes commercial real estate (you're buying the building), the real estate portion amortizes over 25 years. Everything else (goodwill, equipment, working capital, franchise fee) is 10 years. Most franchise and business acquisitions are pure 10-year loans because you're leasing, not buying, the real estate.
Related guides
Long-form playbooks on the same topic, written by the RevenueLab editorial team.
SBA 7(a) Loan Guide 2026: The Four Gates, DSCR Math, Rates, and What Kills the Packet
The 4-gate underwriting process, why 1.25× DSCR is the magic number, 2026 rates (Prime + 2.75%), 6 fees to expect, and the mistakes that kill SBA loan packets at the bank.
Read the guideFranchise vs Starting a Business: Which Pencils Better in 2026?
A side-by-side on survival rates, capital needs, cash-on-cash returns, and resale multiples — and the operator profile each path suits. With the math, not just opinions.
Read the guideHow Much Does a Franchise Cost in 2026? Full Breakdown by Tier (with Real Numbers)
Every line item — franchise fee, build-out, equipment, training, working capital, royalty, ad fund, reserve — across $50K, $250K, $500K, and $1M+ tiers. No marketing fluff.
Read the guideFAQ
How much can I borrow with an SBA 7(a) loan?
Up to $5M total. Most franchise/business acquisitions land in the $200K–$1.5M range. The practical ceiling for first-time buyers is what your DSCR can support — not the SBA max.
What credit score do I need for an SBA 7(a) loan?
SBA officially has no minimum, but lenders do. 680+ FICO is the practical floor at SBA Preferred Lenders; 700+ gets you better terms. Below 680, you're typically routed to SBA Express ($500K cap, faster) or denied.
What's the SBA 7(a) interest rate in 2026?
Prime + 1.5% to Prime + 4.75%, capped by SBA tiers. On loans > $350K, lenders typically charge Prime + 2.75% (about 10.5% with current Prime). Variable rates that adjust quarterly are standard.
Why is DSCR 1.25 the magic number?
SBA's underwriting guidance (SOP 50 10) requires a minimum 1.15× DSCR; lenders add their own 0.10 buffer, landing at 1.25×. Below that, the loan packet won't get to SBA approval. Above 1.5× you're in clean-underwriting territory.
Can I use an SBA 7(a) loan to buy a franchise?
Yes — if the franchise is on the SBA Franchise Directory. This is the first thing to check before falling in love with a brand. Brands not on the directory aren't auto-disqualified but require lender-specific approval and usually larger down payments.
How this calculator is built
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Last reviewed
June 2026. We re-check every figure on the platform on a rolling quarterly cycle.
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