Like 7(a) loans, SBA 504 loans require less money down and have longer terms, but can only be used as long-term, fixed-rate financing for purchasing major assets like real estate and long-term machinery or to renovate facilities. This means that any startup cost (including franchise fees) would come out of the franchisee's pocket or be covered through another funding source. The maximum 504 loan amount is also $5 million.
Although 504 loans don't require a personal guarantee, they typically have higher fees than a traditional bank loan. Furthermore, 504 loans require the involvement of three parties, so every month franchisees must pay two different institutions, which can be challenging. TD Bank and many other lenders try to minimize this pain point, but it is still an obstacle associated with this lending type.