SBA Announces Changes for Franchise Financing

3 Min Read By Lee Plave

 

The Small Business Administration (SBA) recently announced a significant change in their process for reviewing applications by franchisees for SBA-backed financing. The changes are the result of a years-long dialogue among the agency, the International Franchise Association, franchise lawyers and critical third-party vendors such as FranDATA.

 

The SBA's staff had previously wrestled with the question of whether there was too much "affiliation" between a franchisor and a franchisee. In their view, if the franchisee was too closely "affiliated" with its franchisor, then the franchisee would not be sufficiently independent to be eligible to receive SBA backing for a bank loan.

 

The just-announced revisions streamline the process. The SBA issued a new "Standard Operating Procedure" (SOP) on November 22, 2016, which follows on regulatory amendments adopted in July 2016. 13 C.F.R. § 121.301. Among other things, the new SOP states that if a franchisor and a franchisee sign a…