Franchise Changes

Will be effective January 1, 2017

The primary purpose for the updated SOP 50 10 5 (I):

To streamline the procedures for determining size

eligibility of franchise applicants based on affiliation with

franchise systems

This SOP update will apply to all applications received by SBA on or after

January 1, 2017

1

Franchise Changes

Regulation Change Approved July 27, 2016

CFR§121.301(f)(5) Affiliation based on franchise and license agreements. The restraints

imposed on a franchisee or licensee by its franchise or license

agreement generally will not be considered in determining whether

the franchisor or licensor is affiliated with an applicant franchisee or

licensee provided the applicant franchisee or licensee has the right to

profit from its efforts and bears the risk of loss commensurate with

ownership. SBA will only consider the franchise or license

agreements of the applicant concern.

2

Franchise Changes

The changes replace the franchise review process in SOP 50 10 5 (H)

SBA will no longer:

• Review franchise and license agreements to confirm the size eligibility of

applicant franchisees based on their relationship with a franchise system.

• Maintain a centralized listing of franchise systems or franchise findings list with

individual franchise addendums.

SBA will now:

• Require a standard SBA Addendum to Franchise Agreement be executed by the

franchisor and franchisee.

• Lender will enter the identity of Franchises in Etran and/or SBA ONE when

submitting loan applications.

3

Franchise Changes

The SBA Addendum to Franchise Agreement addresses SBA’s

concerns as to whether the applicant is small based on their

relationship with a Franchise system.

If the Franchisor and Franchisee have signed the “SBA Addendum to

Franchise Agreement”, SBA will not consider the applicant

Franchisee and their Franchisor affiliated for the applicant size

determination.

4

General Eligibility Stays the Same

Lenders remain responsible to ensure that the applicant

meets all SBA eligibility requirements

(see Subpart B, Chapter 2 of SOP 50 10)

5

Size

& Affiliates

Passive

Business Model

Franchise Eligibility Change

For each application involving an applicant franchisee:

1. Lender must obtain the SBA “Addendum to Franchise

Agreement” (SBA Form 2462 will be located in

Appendix 9 of this SOP) executed by the franchisor and

applicant franchisee. This standard Addendum takes the

place of individually negotiated addendums and annual

reviews. The terms of the Addendum are not subject to

system by system negotiation.

2. Lender will follow instructions in SBA One and/or E-

Tran to identify the franchise system with which the

franchise applicant is working.

6

Franchise Identifier

When entering loan via ETRAN or SBA ONE, Lender is

prompted to answer the question, “is this a Franchise” with

yes or no.

A drop down box will appear on yes answers with a list of

Franchise names from which the Lender selects the

franchise that the applicant owns or will purchase.

(This currently happens in both systems.)

If Franchise name is not on list, please send a request for support to :

franchiseFY2017@sba.gov

7

8

9

Previous

10

New Franchise Process

11

Franchise Process Start End

Lender obtains

Addendum

To Franchise

Agreement *

(Signed by

both Franchisor

and

Franchisee)

Lender Obtains

Fully Executed

Franchise

Agreement

Lender

Identifies

Franchise in

ETRAN or

SBAONE

Entry

(follow

directions)

*Can be conditioned for prior to disbursement

Original documents are to be maintained in file for life of loan

Questions?

12

You can send your

FRANCHISE questions to:

FranchiseFY2017@sba.gov

SBA Information Notice 5000-1399