SBA Franchise News

In the past few months there have been several new developments in SBA franchise eligibility that lenders should be aware of when considering financing franchise loans, including:

1. "Sola Salons" and "Salons by JC" were taken off the SBA Franchise Registry. Both of these franchises are not eligible for SBA loans because the majority of the franchisee's income comes from renting space not providing services, making them passive businesses, even though they have eligible franchise agreements. Since this type of business is not eligible no matter what the agreements say, these franchises were removed.

2. For franchises listed on the Registry, Lenders are responsible to make sure any Addendums SBA requires from the franchisor to make the listed agreement eligible are part of the franchise agreement signed by the borrower. You cannot tell from looking at the list of eligible franchises on the Registry if there is an Addendum required. You can get this information in several ways: Ask the franchisor to provide any Addendums when you request the Certification of No Change or Non-Material Change; When you send an e-mail to Franchise@sba.gov and ask for the SBA loan history, also ask if there are any Addendums required for the franchise; PLP Lenders may go to the private portion of the Registry and get required Addendums. SBA is working with Frandata to identify those listed franchises that have an Addendum on the main Registry page.

3. State Farm and SBA have negotiated a Letter Addendum to the State Farm Agent agreement that makes the current State Farm agreement eligible. Since State Farm is not getting listed on the Registry, the agreement for each individual deal will still have to be reviewed for eligibility. The Lender should ask State Farm to provide a copy of the executed Addendum and place it with the agreement, this should resolve the major SBA eligibility problem.

4. Coming Soon: Allstate and SBA are negotiating a similar Addendum to the Allstate Agent Agreement that has yet to be finalized. As with State Farm, the agreement will still have to be reviewed for each deal and the Lender should ask Allstate for a copy of the executed Addendum.

5. Coming Soon: ARCO/BP and SBA have negotiated an Inter Creditor Agreement that will be required for ARCO/BP gas station deals, that clears up the major eligibility issues in the current ARCO/BP marketer agreement and right of first refusal documents. Lender will still be responsible to review these documents and all relevant documents listed in SOP 50 10 5(B) at pages 92-95.

6. Coming Later: SBA's Franchise Findings list will be available on the SBA banking website www.sba.gov/banking. This list provides information on the eligibility problems SBA counsel have found for franchises that are not listed on the Registry.

Starfield & Smith, PC performs SBA franchise eligibility reviews for franchises, licenses, and gas station marketer, jobber, or dealer agreements and all relevant documents. For more information on the franchise realted services performed by Starfield & Smith, contact Michele Courneya at (612) 208-0877 or mcourneya@starfieldsmith.com.