SBA SOP 50 10 8, A.Ch1.G — FRANCHISES
Verbatim text of SBA SOP 50 10 8 section A.Ch1.G (FRANCHISES), effective 2025-06-01. 9 provision(s) quoted from the SOP PDF. SBA's own document page serves superseded editions, and the SOP is further amended by policy notices — read this with the notices that touch it.
Verbatim regulatory text
Verbatim provisions from SBA SOP 50 10 8, A.Ch1.G — FRANCHISES — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.
SOP 50 10 8 A.Ch1.G
G. FRANCHISES 1. The procedures described below apply to all agreements or relationships that SBA determines meet the Federal Trade Commission (FTC) definition of “franchise” in 16 CFR § 436. While a relationship established under a license, jobber, dealer or similar agreement is not generally described as a “franchise” relationship, if SBA determines that the relationship meets the FTC’s definition of a franchise, SBA will treat the relationship as a franchise. All such relationships are referred to in this paragraph as “franchises,” the agreements are referred to as “franchise agreements,” and the parties to such agreements are referred to as “franchisor” and “franchisee.” 2. For purposes of determining whether an Applicant is operating under an eligible franchise, license, or similar agreement, SBA will only consider franchise, license, or similar agreements of the Applicant and not the agreements of any other franchisee or licensee owned or controlled by the Applicant. 3. Although exempt from FTC disclosure requirements, all agreements and relationships that are covered by the Petroleum Marketing Practices Act (PMPA), 15 U.S.C. 2801 et al. (e.g., gas stations with distributor, fuel supply, dealer and/or jobber agreements), are included within the FTC definition of “franchise” and are, therefore, subject to the procedures described below. 4. Applicants that are or will be operating under a dealer agreement with a new car manufacturer that meets the FTC definition of a franchise are subject to the procedures described below. The SBA Franchise Directory: SBA has created the SBA Franchise Directory (the “Directory”) of all franchise and other brands reviewed by SBA that are eligible for SBA financial assistance. The Directory will only include business models that SBA determines are eligible under SBA’s eligibility criteria. Placement of a brand on the Directory is not an endorsement or a guaranty of the success of the brand. If the Applicant’s brand meets the FTC definition of a franchise, it must be on the Directory in order to obtain SBA financing. To help minimize confusion over brands that may appear to be franchises but that do not meet the FTC definition, SBA will include such brands on the Directory at their request if they are eligible in all other respects. SBA Lenders will be able to rely on the Directory and will no longer need to review franchise or other brand documentation (except for management agreements that are not part of the franchise disclosure documents (FDD)) for eligibility. The Directory will be maintained on SBA’s website and will contain the following information:
SOP 50 10 8 A.Ch1.G.i
i. Whether SBA determined that the brand meets the FTC definition of a franchise; ii. The SBA Franchise Identifier Code, if applicable (a code will only be issued if the agreement meets the FTC definition of a franchise); and
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iii. Whether there are additional issues the SBA Lender must consider with respect to the brand (e.g., documentation that the business will be open to all, and review of any third party management agreement to ensure Applicant is not a passive business. Use of the Directory by SBA Lenders: i. For applications involving a franchise or similar relationship that meets the FTC definition of a franchise, SBA Lenders must check the Directory to determine if it includes the Applicant’s brand before: a) Submitting the application to SBA for non-delegated processing; or b) Approving the loan under the SBA Lender’s delegated authority. ii. If the Applicant’s brand is on the Directory: SBA Lenders may proceed with submitting the application to SBA or approving the loan under delegated authority. iii. If the Applicant’s brand is not on the Directory: a) For non-delegated loans, SBA Lenders cannot submit the application to SBA, and for delegated loans, SBA Lenders cannot approve the loan under delegated authority. b) The SBA Lender should advise the Applicant and/or the franchisor of how the brand can be added to the Directory as detailed in paragraph c., Procedure to add brands to the Directory, below. iv. Exception for Applicants Operating under Multiple Agreements: a) When an Applicant operates under multiple agreements (i.e., multiple product lines), SBA Lenders first must check the Directory to ensure all of Applicant’s agreements that meet the FTC definition of a franchise are on the Directory. If any of the Applicant’s agreements that meet the FTC definition of a franchise are not on the Directory, the application cannot proceed. b) If one of the Applicant’s brands or agreements has been determined by SBA to be ineligible for SBA financial assistance, the loan cannot be processed, regardless of whether the brand or agreement meets the FTC definition of a franchise. v. Exception for Applicants Operating under a Single, Non-critical Agreement: If the Applicant is operating under a single agreement that is not considered critical to the Applicant’s business operation (i.e., it represents 50% or less of the Applicant’s revenues), then the SBA Lender first must check the Directory to ensure that, if the Applicant’s agreement meets the FTC definition of a franchise, it is on the Directory before processing the application. If the agreement meets the FTC definition of a franchise, but is not on the Directory, the application cannot proceed. For example, the Applicant is an auto body shop that also rents trucks and trailers under an agreement. The rental of the trucks and trailers only represents 10% of the Applicant’s revenues. The SBA Lender must check the Directory to ensure that, if the agreement meets the FTC definition of a franchise, the agreement is on the Directory. If the agreement is not listed on the Directory and the SBA Lender determines that the agreement does not meet the FTC definition of a franchise, the SBA Lender must determine the brand is eligible (e.g., does not have discriminatory hiring practices and is not an ineligible passive business) before proceeding with the application. SBA will make the final determination for non-delegated applications. For delegated applications, SBA will review the SBA Lender’s determination at time of purchase or when conducting lender oversight activities for 7(a) loans and prior to closing for 504 loans. The delegated SBA Lender bears the risk of an incorrect determination on a delegated application. Procedure to add brands to the SBA Franchise Directory: i. To add its brand to the Directory, a franchisor must submit the agreement, Franchise Disclosure Document (FDD) if applicable, and all other documents the franchisor requires the franchisee to sign to [email protected] for an eligibility determination. If the documents are submitted to SBA by someone other than the franchisor, contact information for the Franchisor (name and email address only) must be included in the email. The new brands are reviewed in the order in which they are received. Under certain circumstances, SBA as part of its review may request the franchise operations manual and other documentation explaining business operations. ii. The SBA Franchise Team will refer agreements involving brands that may be engaged in promoting religion, have activities of a prurient nature, that appear to cater to one gender, that were a party to litigation involving the federal government, or that present such other issues as the SBA Franchise Team may, in its discretion, deem appropriate, to the Associate General Counsel for Litigation for a final Agency decision on inclusion on the SBA Franchise Directory.
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iii. Upon completion of SBA’s review and a determination by SBA that the brand is eligible, SBA will send the Franchisor Certification or the Distributer Certification to the franchisor or distributor for review and an authorized representative’s signature. Once a properly executed Franchisor or Distributor Certification is returned to SBA at [email protected], SBA will list the brand on the Directory and will assign an SBA Franchise Identifier Code. If SBA determines that the brand does not meet the FTC definition of a franchise, SBA will list the brand on the Directory but will indicate that it does not meet the FTC definition of a franchise and SBA will not assign an SBA Franchise Identifier Code. iv. If SBA determines that Franchisor/Distributor has not complied with the terms of the Franchisor/Distributor Certification or has engaged in any illegal activity, has submitted false information to SBA or the SBA Lender, or has withheld material information to SBA or the SBA Lender, or if a State has issued an order prohibiting the Franchisor or Distributor from operating within that State, SBA may remove the brand subject to a 30-day notice and opportunity for Franchisor/Distributor to respond. If SBA determines that Franchisor has not complied with the terms of the Certification, the brand is no longer eligible under SBA Loan Program Requirements, or for any other cause that warrants removal of the brand from the Directory, as determined by SBA in its discretion, SBA will provide the Franchisor with notice and 30 days to respond before removing the brand from the Directory. Procedure to Submit Franchise Loan Applications: i. For non-delegated loans: a) If the Applicant’s brand meets the FTC definition of a franchise, the SBA Lender must identify the name of the franchise and the SBA Franchise Identifier Code when entering the application into E-Tran. The SBA Lender must ensure that the brand name (and where applicable, the type of agreement) the Applicant will be operating under matches the brand name (and where applicable, the type of agreement) listed on the Directory. b) No other franchise documentation must be submitted to the SBA loan processing center with the application. c) SBA will confirm that the brand is listed on the Directory. d) If the SBA Lender determines that the Applicant’s brand does not meet the FTC definition of a franchise, and it is not on the Directory, then the SBA Lender needs to explain its determination in its credit memorandum when submitting the application to the SBA loan processing center and provide the agreement and any additional documentation required by the brand. SBA Lender also must provide contact information for the franchisor/licensor (name and email address only). The SBA loan processing center will forward the documentation and contact information to the SBA Franchise Team for review and final determination. ii. For delegated loans: a) If the Applicant’s brand meets the FTC definition of a franchise, the SBA Lender must document in its file that the Applicant’s brand is on the Directory and identify the name of the franchise and SBA Franchise Identifier Code when entering the application or request for loan number into E-Tran. The SBA Lender must ensure that the brand name (and where applicable, the type of agreement) the Applicant will be operating under matches the brand name (and where applicable, the type of agreement) listed on the Directory. b) The SBA Lender will need to submit the documentation showing that the Applicant’s brand is on the Directory: i) For 7(a) loans: With any guaranty purchase request; ii) For 504 loans: To SBA counsel (not the Franchise mailbox) for approval prior to submitting the closing documents to SBA counsel. c) If the Applicant’s brand is not on the Directory and the delegated SBA Lender determines the brand does not meet the FTC definition: i) For 7(a) loans: If the SBA Lender proceeds with approving the loan under its delegated authority, SBA will review this decision at time of purchase or when conducting lender oversight activities and the delegated SBA Lender bears the risk of an incorrect determination. ii) For 504 loans: The SBA Lender approving a loan under its delegated authority must submit the documents to [email protected] for a final determination by SBA. SBA Lender must provide contact information for the franchisor/licensor (name and email address only). After receiving SBA’s final determination, the delegated SBA Lender may proceed with approving the loan under its delegated authority. iii. When an Applicant operates under multiple brands, the SBA Lender must enter the name of the franchise and the SBA Franchise Identifier Code for the brand that generates the largest amount of the Applicant’s revenue when entering the application or request for an SBA loan number in E-Tran. The SBA Lender must identify all other brands and their SBA Franchise Identifier Codes (if applicable) in the SBA Lender’s credit memorandum. a) For non-delegated loans, the SBA loan processing center will confirm that all of the Applicant’s brands are eligible for SBA financial assistance. b) For delegated loans, the delegated SBA Lender must document in its file that all of the Applicant’s brands are eligible for SBA financial assistance. iv. The SBA Lender must obtain a copy of the executed franchise agreement and any other document the franchisor requires the franchisee to sign. (While it is prudent for the SBA Lender to review the Franchise Disclosure Document, as it contains financial information on the franchise brand, it is not necessary for the SBA Lender to retain a copy in its file.) a) For 7(a) loans, the SBA Lender must obtain these documents prior to any disbursement of loan proceeds. b) For 504 loans:
SOP 50 10 8 A.Ch1.G.i.iii.i
i) Non-delegated loans: The SBA Lender must provide these documents to and receive approval from the SLPC prior to submitting the closing package for debenture funding; ii) Delegated loans: Delegated SBA Lenders must submit these documents to and receive approval from SBA counsel (not the franchise mailbox) prior to submitting the closing package for debenture funding. c) In order to ensure the SBA Lender obtained the required documents and the documents were properly executed, SBA may review these documents when conducting SBA Lender oversight activities, and they must be provided with any request for SBA to honor the guaranty on a defaulted 7(a) loan. Applications involving an applicant franchisor: The franchisor’s brand must be listed on the Directory as an approved brand even if the franchisor will not be executing a franchise agreement in connection with the loan transaction. The franchisor in its own capacity must also meet SBA’s Size Standards (the franchisor does not need to be combined with franchisees for determining size). Applications involving Franchise Development Agreements or Area Development Rights: Franchise Development Agreements (also known as a “Master Franchise Agreements”) provide the developer with a geographic area with which to establish additional franchise units. These additional franchise units are owned and operated by other franchisees, and the developer’s income is derived from the royalty payments from each franchisee in the developer’s geographic territory. Based on those features, these agreements have been determined to be passive and, therefore, an Applicant that is or will be operating under a Franchise Development Agreement is not eligible for SBA financial assistance. If an Applicant franchisee has an affiliate that operates under an ineligible Franchise Development Agreement, the Applicant franchisee may be eligible for SBA financial assistance, provided that the Applicant and its affiliates are small, and no SBA loan proceeds are used for the benefit of the ineligible affiliate franchise developer. An Applicant franchisee that is or will be operating under a franchise agreement that provides the franchisee with the right to develop additional units that the franchisee or its affiliates own and operate within its territory (“area development rights” or “Multi-Unit Franchise Agreement”), however, may be eligible provided that the Applicant and its affiliate franchise units is small. Franchise Applicants with Management Agreements: i. If the Applicant will be using a management agreement that is not part of the franchise disclosure documents, the SBA Lender, not SBA, must review the management agreement or other similar agreements to determine whether the agreement makes the Applicant an ineligible passive business.
SOP 50 10 8 A.Ch1.G.i.iii.ii
ii. Management agreements that give the management company sole discretion over the business operations create ineligible passive businesses. However, if the management company does not have sole discretion to manage the operations of the business and the Applicant exercises meaningful oversight of the business, the Applicant is eligible.
SOP 50 10 8 A.Ch1.G.i.iii.iii
iii. “Meaningful oversight” by the Applicant means involvement in the decisions made concerning the operation of the business, which include a management agreement that provides for the Applicant to do all of the following: a) Approve the annual operating budget; b) Approve any capital expenditures or operating expenses over a significant dollar threshold; c) Have control over the bank accounts; and d) Have oversight over the employees operating the business (who must be employees of the Applicant). iv. If the Applicant franchisee is operating under a management agreement where the management company is, or is affiliated with, the franchisor, the Applicant is not eligible. Such a relationship does not result in the franchisee operating as an independent small business. v. See Paragraph E.3, Passive Businesses, above for guidance on passive businesses. Questions on SBA’s Franchise Policy, Requests for Reconsideration and Appeals: i. Questions on SBA’s Franchise Policy should be directed to [email protected].
SOP 50 10 8 A.Ch1.G.i.i.ii
ii. Franchisors that would like to appeal SBA’s decision not to place them on the Directory may do so by forwarding a copy of the decision, along with an explanation of how the determination is perceived to be inconsistent with SBA Loan Program Requirements, to [email protected]. Franchise appeals will be reviewed by the SBA Franchise Committee. iii. There is no right of appeal for final Agency decisions made by the Associate General Counsel for Litigation.
SOP 50 10 8 A.Ch1.G.i.i.iv
iv. Franchisors that would like to request reconsideration of SBA’s determination that they meet the FTC definition of a franchise or that their agreement creates an ineligible passive business may do so by forwarding a copy of the decision, along with an explanation of why that decision is perceived to be incorrect, as well as any supporting documentation to [email protected].
Operationalizing SBA SOP 50 10 8, A.Ch1.G — FRANCHISES
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