The Small Business Administration (SBA) made a change to how SBA lenders will approve franchise agreements/systems to determine eligibility for SBA financing. The new policy goes into effect on January 1, 2017. The way procedures are today, lenders check the Franchise Registry, a list of brands who qualify to receive a loan based on their abidance to SBA’s eligibility rules. Franchisors submit franchisees to the SBA for review. If the SBA is able to ensure that the franchisor would not exert undue control, the franchisee was added to the list. This process has been in place since 1998.
The new rule will make it so that, in lieu of submitting each franchisee for review, the franchisor and franchisee sign a two-page agreement, which is an addition to the franchise agreement. This form ensures that the franchisor will not exert undue control. Tom said, “The SBA did a fine job in reducing the ambiguity in the process by making it clear that this new addendum will override any conflicts to the franchise agreement that do not meet SBA eligibility requirements.”