Does a franchise need to be on the SBA Franchise Directory?
Short answer
Yes. Under SBA rules, a brand that meets the FTC definition of a franchise must be on the SBA Franchise Directory to obtain SBA financing. Lenders must check the Directory before submitting or approving the loan. Source: SOP 50 10 8.1, Sec. A, Ch. 1, Para. G.
In this answer, FTC means Federal Trade Commission.
Yes. Under SBA rules, a brand that meets the FTC definition of a franchise must be on the SBA Franchise Directory to obtain SBA financing. The rule is in SOP 50 10 8.1, Sec. A, Ch. 1, Para. G.
What the Directory shows
SBA keeps the Directory on its website. For each brand it shows:
- Whether SBA found the brand meets the Federal Trade Commission (FTC) definition.
- The SBA Franchise Identifier Code, issued only if it does.
- Any added issues the lender must consider, such as proof the business is open to all.
Brands that do not meet the definition can also be listed at their request, if eligible in all other respects.
What listing means
Listing is not an endorsement or a guaranty of the brand's success. Lenders can rely on the Directory and no longer need to review franchise documents for eligibility. Management agreements outside the franchise disclosure documents are the exception.
What the lender does
The lender must check the Directory before submitting the application to SBA or approving it under delegated authority. It must confirm the brand name, and where applicable the agreement type, match the listing. It must also obtain the executed franchise agreement and any other document the franchisor requires you to sign.
On Standard 7(a) loans, the lender must review any credit information provided, such as the number of failed franchisees. See Sec. B, Ch. 1, Para. C.2.
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