SBA Makes it Easier For Franchisees to Obtain Financing

The Small Business Administration (SBA) has simplified the SBA loan process for franchisees, effective January 1, 2018. The SBA has created a new SBA Franchise Directory, which lists all franchises reviewed by the SBA and eligible for SBA loans. Franchisors who were approved in 2015 or 2016 under the old franchise registry can continue to use the documents that were approved at that time as long as they have made no substantial changes to the control provisions of their franchise agreements. Likewise, franchisees of franchisors willing to sign the SBA’s standard addendum that was created in February 2017 may continue to obtain loans using that addendum.

However, for franchisors who were not previously listed on the franchise registry or who will not accept the 2017 standard addendum, there will be another option. Unlike the old process that required franchisors to submit their franchise agreements for review by FranData each year – at a significant cost to franchisors – franchisors who would like to be on the newly created SBA Franchise Directory may register directly with the SBA. They must submit the franchise agreement, franchise disclosure document, and all other documents they require the franchisee to sign to [email protected] for an affiliation and eligibility determination. The SBA will determine what, if any, addendum is required. There is no cost to submit a franchise to the directory. Franchisors who are listed in the directory must submit by April 30 an annual franchisor certification (certifying that no terms which would jeopardize SBA eligibility have changed) to renew their listing annually.

The SBA is accepting applications now under the new process. Franchisors should check with their counsel to determine the advantages of being approved for SBA loans, and what is required to be listed on the SBA Franchise Directory.