Franchise · For Buyers with a Unit in Sight · Updated July 2026
Buying an Existing Franchise: The Resale Deal Analysis
A resale gives you something a new unit can't: real numbers. Here's how to run an existing franchise unit through the same checks an SBA lender will — before you sign the LOI.
Buying an existing franchise unit is a change of ownership financed with an SBA 7(a) loan. Three things decide it: the brand must be on the SBA Franchise Directory, the unit must value on its own actual P&Ls (Item 19 is a sanity check, not the price), and the deal must cover its debt after a 10% equity injection and the franchisor's transfer fee. Get all three right before the LOI.
Written by Thomas Hartwell, author of the FUNDED series of industry-specific SBA lending guides.
1. Directory status — the go/no-go before anything else
For any brand that meets the FTC definition of a franchise, the brand must appear on the SBA Franchise Directory for the loan to be eligible. Check it before you spend a dollar on diligence — a brand that isn't listed simply can't be financed with an SBA loan, and no amount of deal quality changes that.
If the brand is listed, the directory also tells you whether an SBA addendum to the franchise agreement is required. Confirm the specific unit and agreement are covered — then move to the numbers. More on the directory check.
2. Value the unit on its P&Ls, not the brand's Item 19
Item 19 of the FDD tells you what units across the system earn on average. It does not tell you what this unit is worth. A change-of-ownership loan is underwritten on the unit's actual tax returns and P&Ls, and the SBA requires an independent business valuation from a qualified source — the loan can't exceed that value.
Use Item 19 as a reasonableness check: if the seller's numbers are wildly above or below system norms, that's a question to answer, not a value to bank on. And expect the lender to verify the seller's returns against IRS transcripts — add-backs that don't reconcile to what was filed get struck, and every struck dollar lowers the price the deal can support.
3. Build the sources and uses — including the transfer fee
A franchise resale has costs a straight business purchase doesn't. Your uses of funds are the purchase price, working capital, closing costs, and the franchisor's transfer fee (disclosed in the FDD). Your sources are the SBA loan plus a minimum 10% equity injection of the total project cost — and a seller note only counts toward that injection if it's on full standby for the life of the loan and no more than half the injection.
The transfer fee is easy to forget and it changes your math: it raises the total project, which raises both the loan the cash flow must cover and the 10% you have to put in. Put it in the model up front. Run the injection math.
4. Run DSCR on the resale — with the royalty load in it
Coverage is what approves the deal. Take the unit's cash flow, subtract the franchisor's royalty and ad-fund fees (from Item 6), and test whether what's left covers the new SBA payment at the coverage lenders want — 1.15x is the SOP floor, 1.25x is the lender standard. Then add your household to get the global number the committee actually decides on.
Royalty and ad-fund fees are a fixed drag a franchise resale carries that an independent business doesn't — a 6% royalty plus 2% ad fund is 8% of sales gone before you cover anything else. Make sure your coverage clears the bar after those fees, not before. Run your global DSCR.
5. Get the franchisor's transfer approval on the timeline
A resale needs the franchisor to approve you as the incoming franchisee — that usually means an application, possibly discovery day, and signing the current franchise agreement (which may have different terms than the seller's). Build that approval into your closing timeline; it runs in parallel with the loan, and a slow franchisor approval can stall an otherwise-ready deal.
Run your franchise resale the way the lender will
The "Will the SBA Fund This Deal?" — Franchise Edition kit builds the whole underwrite on your numbers: the FDD Item 19 revenue build, royalty and ad-fund loads, transfer fee in the sources and uses, walk-away price, equity injection, global DSCR, and the red flags that kill applications — verified against the current SOP 50 10 8. And we don't sell your lead.
See the Kit →Buying an Existing Franchise — FAQ
Can I use an SBA loan to buy an existing franchise unit?
Yes. Buying an existing franchise unit (a resale) is a change of ownership, and SBA 7(a) is the most common way these deals are financed. The one non-negotiable is that the brand must be listed on the SBA Franchise Directory at the time of the loan — verify that before you sign anything, because a brand that isn't listed can't be financed with SBA at all.
Is buying an existing franchise easier to finance than opening a new unit?
Often yes. A resale has real operating history — actual tax returns and P&Ls the lender can underwrite — instead of relying entirely on projections. Existing-business acquisitions are judged on trailing financials with a debt-service coverage test, which is a more concrete basis than a startup's projections. But the resale still has to price where the cash flow covers the debt, and the franchisor still has to approve you as the new franchisee.
How is an existing franchise valued for an SBA loan?
On the unit's actual performance — its tax returns and P&Ls — not on the franchisor's Item 19 averages. Item 19 describes what units across the system earn; it's a sanity check, not the value of this unit. For a change of ownership, the SBA requires an independent business valuation from a qualified source, and the loan can't exceed that value. If the asking price is above the valuation, you cover the gap in cash or renegotiate.
Do I have to pay a transfer fee, and can the SBA loan cover it?
Most franchisors charge a transfer fee when a unit changes hands (it's disclosed in the FDD). It's a real cost of the deal and belongs in your sources and uses alongside the purchase price, working capital, and closing costs. Financeable costs can be rolled into the 7(a) loan, but every dollar added to the loan is a dollar the cash flow has to cover — so it affects your coverage ratio and your equity injection, which is a minimum of 10% of the total project cost.