What Lenders Really Want to See

Getting Approved Isn’t Just About Your Credit Score — It’s About Telling a Convincing Financial Story

Most prospective franchisees approach the lending process backwards. They focus on what they need — the loan amount — without first understanding what the lender needs to feel confident saying yes. The buyers who move through underwriting smoothly are the ones who understand that a loan application isn’t a form to fill out. It’s a case to make.

This page walks you through exactly what lenders are evaluating, why it matters, and how to put yourself in the strongest possible position before you ever sit down with a banker.

The Lender’s Fundamental Question

Every piece of documentation a lender requests, every question they ask, and every number they analyze is in service of one fundamental question:

Can this person repay this loan — and what happens if things don’t go as planned?

That question has two parts — repayment capacity and risk mitigation — and your application needs to answer both convincingly. Understanding that framing changes how you approach everything that follows.

The Six Things Lenders Evaluate

1. Personal Credit Score and Credit History

Your credit score is the first filter. Most SBA lenders want to see a minimum score of 680, though some will work with scores in the 650 range depending on compensating factors. But your score is just the headline — lenders also look at the story behind it:

✅ Payment history — are you consistently on time?
✅ Credit utilization — are you carrying high balances relative to your limits?
✅ Derogatory marks — bankruptcies, collections, judgments, and how recent they are
✅ Length of credit history — how long have you been managing credit responsibly?
✅ Recent inquiries — multiple recent credit applications can signal financial stress

If your score needs work, start addressing it 6 to 12 months before you plan to apply. Pay down balances, resolve any outstanding collections, and avoid opening new credit accounts in the months leading up to your application.

2. Personal Financial Statement

Most lenders require a personal financial statement — a snapshot of your complete financial picture including assets, liabilities, and net worth. This is where lenders see the full scope of your financial life beyond your credit report.

Your personal financial statement should include:

✅ Cash and liquid savings
✅ Retirement accounts (IRAs, 401(k)s)
✅ Real estate and estimated equity
✅ Investment accounts
✅ Business interests and their estimated value
✅ Outstanding loans — mortgage, auto, student, personal
✅ Credit card balances
✅ Any other liabilities

Be thorough and accurate. Lenders will verify key figures, and inconsistencies between your application and what they find during underwriting raise serious concerns.

3. Liquidity — What You Have Left After the Down Payment

This is one of the most overlooked factors in franchise lending, and it’s one lenders pay close attention to. Coming to your loan closing with exactly enough for your down payment and nothing else is a yellow flag. It tells the lender that if anything goes wrong in your first six months — a slower ramp than projected, an unexpected repair, a staffing crisis — you have no financial cushion.

Lenders want to see that after your equity injection, you still have meaningful reserves. What counts as meaningful varies by lender and loan size, but a general benchmark is:

✅ At minimum, 2 to 3 months of projected operating expenses remaining after closing
✅ Ideally, 6 months or more — which aligns with the working capital philosophy we’ll cover on Page 11

If your liquidity position is tight, consider whether you’re ready to move forward — or whether building more reserves first puts you in a stronger position.

4. Relevant Experience

Lenders are not just financing a brand — they’re financing you. Your background, experience, and demonstrated ability to manage people, run operations, or lead a business matters to underwriters.

Relevant experience can include:

✅ Prior business ownership — even if in a different industry
✅ Management or leadership roles with P&L responsibility
✅ Industry-specific experience — particularly valuable for food, fitness, or service concepts
✅ Military service — strong discipline and leadership signals that many lenders view favorably
✅ Corporate career with operational or financial oversight responsibilities

If your background doesn’t include direct business ownership, frame your experience in terms of the competencies that translate — managing teams, controlling budgets, driving results. Your business plan is where this narrative lives most powerfully.

5. The Business Plan

A strong business plan is not a formality — it’s one of the most important documents in your loan package. Lenders use it to evaluate whether you understand the business you’re buying into, whether your financial projections are grounded in reality, and whether you have a credible plan to build and grow the operation.

A complete franchise business plan includes:

✅ Executive summary — what the business is, why this brand, why this market
✅ Concept overview — the franchise model, the franchisor’s track record, the support structure
✅ Market analysis — your target customer, your local competitive landscape, your trade area
✅ Management team — your background and any key hires planned
✅ Operations plan — how the business will run day to day
✅ Financial projections — three years of projected income statements, cash flow statements, and balance sheets
✅ Loan request — exactly how much you’re borrowing and precisely how the proceeds will be used

Many franchisors provide business plan templates or tools as part of their onboarding process. Use them as a starting point — but customize them meaningfully for your specific market and situation. A lender who sees the same generic template from every franchisee in a system is not going to be impressed.

6. Collateral

SBA loans are typically secured by the assets being financed — equipment, leasehold improvements, and business assets. When business assets don’t fully cover the loan amount, lenders may also look to personal assets — most commonly your home equity — as additional collateral.

Understanding what collateral you’re putting on the line is not a reason to avoid SBA financing. It’s a reason to go in clear-eyed. You are personally guaranteeing this loan. That means:

✅ Your personal assets are at risk if the business fails and the loan defaults
✅ Your spouse may be required to sign the personal guarantee if you own marital assets jointly
✅ The lender will file a lien on collateral assets that remains until the loan is repaid

This is the financial reality of franchise ownership for most buyers. The lenders who extend this capital are taking real risk alongside you — which is why they ask the questions they do.

Documents You’ll Typically Need to Provide

Being organized and responsive during underwriting signals to your lender that you’re a capable operator. Here’s what most SBA franchise lenders will request:

✅ Personal tax returns — typically 3 years
✅ Business tax returns if you own or have owned another business — typically 3 years
✅ Personal financial statement — completed and signed
✅ Personal bank statements — typically 3 to 6 months
✅ Resume or biography highlighting relevant experience
✅ Franchise agreement or letter of intent from the franchisor
✅ FDD — particularly Item 7 and Item 19
✅ Completed business plan with financial projections
✅ Lease agreement or letter of intent from your landlord (if applicable)
✅ Contractor bids for buildout (if applicable)
✅ Equipment quotes (if applicable)
✅ Government-issued ID

Having these documents organized and ready before your first lender meeting signals competence and accelerates the process meaningfully.

Common Application Mistakes That Slow Things Down

Even well-qualified buyers can create friction in the loan process with avoidable mistakes:

✅ Inconsistent numbers — if your tax returns, financial statement, and business plan projections don’t tell a consistent story, lenders will ask questions and timelines will extend
✅ Incomplete documentation — missing a single document can pause underwriting for days or weeks
✅ Overly optimistic projections — lenders have seen hundreds of franchise business plans; projections that assume immediate strong performance without a credible ramp-up period raise red flags
✅ Recent large deposits without explanation — if your bank statements show a large unexplained deposit, lenders will want to know where it came from; document gifts, asset sales, or transfers in advance
✅ New debt or credit applications during underwriting — opening a new credit card or financing a car while your loan is in process can materially affect your approval

The Value of a Lender Relationship Before You Apply

The best time to start talking to lenders is before you’re ready to apply. An introductory conversation with an SBA-preferred lender gives you:

✅ A realistic sense of what you’ll qualify for
✅ Guidance on what to address before formally applying
✅ A relationship with someone who will advocate for your file during underwriting
✅ A clearer picture of your timeline from application to closing

Many franchise lenders offer pre-qualification conversations at no cost and with no obligation. Use them.

Knowledge Is Part of Your Application

The more informed you are as a buyer — about the brand, the market, the financials, and the franchise landscape — the more confident you’ll present throughout the lending process. Staying current on franchise news and brand developments through resources like FranchisePressReleases.com, part of the Franchise Media Group network, is one way to make sure you’re walking into every conversation — with lenders, franchisors, and existing owners — as a prepared and credible buyer.

Key Takeaways From Page 6

✅ Lenders are evaluating one fundamental question — can you repay this loan and what happens if you can’t
✅ Credit score is the first filter but your full credit story matters just as much
✅ Liquidity after your down payment is a signal of financial stability — coming in tapped out is a yellow flag
✅ Your business plan is a narrative document — it should tell a credible, specific story about you, your market, and your plan
✅ Organize your documents before your first lender meeting — responsiveness and preparation signal competence