A positive development for franchise systems seeking to streamline the SBA loan approval process for their franchisees is coming this summer.  The new version of the SBA Loan Origination Policies and Procedures for Lender and Development Company Loan Programs will revive its “Franchise Directory” effective June 1st.  The Franchise Directory was discontinued in 2023 after launching in 2018.

The Franchise Directory provides major benefits to franchisees seeking financing and franchisors hoping to streamline the financing process for their franchisees by reducing the amount of paperwork that lenders needed to review for loans.  It provides a centralized location for lenders to check a franchise’s eligibility for SBA financing and assess whether to approve loans.  As attorneys, our franchise system clients would often ask us about the SBA Franchise Directory and how to secure inclusion on it.  A few points to keep in mind if client ask about the resurrected Franchise Directory:

  1. There is no cost to be listed on the Franchise Directory.
  2. A franchisor must be listed in the directory in order for its franchisees to qualify for SBA loans.
  3. The SBA Addendum (Form 2462 or negotiated addendum) will no longer be required but franchisors will need to with a certification signed by the franchisor acknowledging the conditions required to be listed on the directory. Many of these conditions are the same as those of the previous Franchise Directory.
  4. Franchisors that were previously listed in the directory may sign the certification within a specified period to be reinstated.
  5. The Franchise Directory is intended to include only those brands that meet the FTC definition of a “franchise” however, the SBA will include brands that appear to be franchises, but do not meet the definition, upon the request of a brand if the brand is eligible in all other respects.
  6. Any franchise system seeking inclusion on the Franchise Directory must submit a copy of its FDD, including the franchise agreement and all other documents required to be signed by a franchisee to franchise@sba.gov for an eligibility determination.
  7. Under certain circumstances, SBA as part of its review may request the franchise operations manual and other documentation explaining business operations.
  8. 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 franchise@sba.gov, the SBA will list the brand on the Directory and will assign an SBA Franchise Identifier Code.

The International Franchise Association released a summary this week outlining the benefits of the Franchise Directory with additional information which you can find here.