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SBA Franchise Eligibility
Michele Courneya SBA Senior Franchise
Counsel/Minnesota District Counsel
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Eligibility & the Franchise Registry
How to Access the Franchise RegistryHow to Use the Franchise RegistryHow to Use Private Information on the RegistryWhat if a Franchise is Not on the Franchise RegistryDetermining Eligibility of Non-Registry Franchises
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How to Access the Franchise Registry
Registry is on Internet at www.franchiseregistry.comYou can also access this site from SBA’s banking site www.sba.gov/banking If you don’t have Internet access, contact your local SBA office and ask them to check the Registry.
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How to Use the Franchise Registry
Lenders may assume Franchises listed on the Registry are not affiliated.If Franchise is listed, Lender only needs to obtain a Certification of No Change or Non-Material Change OR a Certification of Change. If Certification of No Change or Non-Material Change is provided, no further review of the franchise documents is necessary.
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How to Use the Franchise Registry cont.
Send Certification of No Change or Non-Material Change to SBA with the application or put it in your file for PLP or PCLP loans.If Certification of Material Change is provided, send a copy to Frandata. Wait to approve loan until changes have been reviewed and approved by SBA or conduct the eligibility review.
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How to Use Private Portion of the Registry
Obtain User Name and Passcode from Sandy Lear at the PLP Center [email protected], 916-930-2461 Go to www.franchiseregistry.com/privateEnter User Name and PasscodeClick on “Lenders Welcome”Search for Franchise by name or industry.
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How to Use Private Portion, Cont.
You will find:Date the franchise was put on the Registry and dates of any updatesFranchisor Contact InformationEligibility Worksheet Franchise Documents, Addenda
Review sections of documents for Franchise you are interested inIf you have problems, contact Frandata
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What if a Franchise is Not on the Registry?
Only franchises listed on the Registry have been found eligible under 121.103(g) for all SBA loansJust because a Franchise has an SBA Franchise Code does NOT mean it’s eligible for all purposesFranchise Documents must be reviewed for each loan, no matter how many SBA loans have been made to that franchise.
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Franchises Not on Registry Cont.
Review is necessary because:Documents may have changed Franchises eligible in one state may NOT be eligible in anotherFranchisors may have several different agreementsFranchise may Not be eligible without an amendment negotiated by SBA or PLP Lender
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How to Determine Eligibility of Non-Registry Franchises
Franchise Eligibility ChecklistE-mail [email protected] and ask if SBA has any Franchise Findings and/or Loan History for the FranchiseSee 13 CFR 120.100(d),13 CFR 121.103(g), SOP 50-10(4) p.75, and SOP 70-50(3) App. 3 for additional Franchise Eligibility Guidelines
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IssuesBased on the franchise documents, is Franchisor affiliated with Franchisee and too big for SBA size standards?Does franchisee have the right to profit from its efforts and bear the risk of loss commensurate with ownership?Are their other factors such as excessive restraint on transfer that give control to the franchisor?
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When Does Affiliation Exist in Franchises?
When the Franchisor controls or has the power to control the FranchiseeWhen the Franchisee does not have the right to profit from its efforts, or bear the risk of loss commensurate with ownership
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Franchisor May:
Establish quality control guidelinesImpose premises designMandate advertising & accounting formatsRequire trainingImpose special conditions on Franchisee for specific business needs
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Franchisor May Not:
Charge excessive franchise feeProhibit or excessively restrict transfer of franchiseRetain sole discretion in decisions on transferControl all of Franchisee’s receipts and billings and hire all employeesControl the price at which it will buy back the Franchise business.
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If Franchise is Not Eligible
Notify the Franchisor with the reasonsTry to negotiate an amendment to the agreement to fix problemsSuggest Franchisor apply for the Registry if they plan on doing lots of SBA loans
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Remember
2 major issues are: Too much control by FranchisorFranchisor interferes significantly with Franchisee right to benefit from profits.
Most common problem areas in Franchise Agreements:
TransferFranchisor Control of accountsFranchisor control of employees
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Who to Contact with Questions
FRANCHISE E-mail Box [email protected] Franchise Counsel, Michele Courneya [email protected](612)370-2353Chief Counsel for Finance, Harry Kempler [email protected], (202) 205-6866
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Formal Size Determination
Applicant always has the right to request a formal size determination from the appropriate SBA Government Contracting Area Office. 13 CFR 121.1001(b)(1)There is no right of appeal from a formal size determination. SBA’s Office of Hearings & Appeals may choose to review these decisions at applicant’s request. 13 CFR 121.1101
