Effective January 1, 2017, the SBA has changed the process for how SBA lenders finance franchise borrowers. The SBA says the purpose of the revisions is to "streamline the procedures" for determining whether a business qualifies as a small business when applying for an SBA loan. This change speeds up the loan process while minimizing the resources required by the SBA.
Franchise agreements between the franchisee and franchisor are no longer required to be reviewed and approved by the SBA. The process provides a new SBA franchise agreement addendum form that addresses some of the issues common in franchise agreements that may otherwise prevent the franchisee from securing an SBA loan. A new two-page form, "Addendum to Franchise Agreement" (SBA Form 2462), must be signed by the franchisor and franchisee for each loan involving a franchise or similar agreement. This will replace the current process of the SBA reviewing franchise and license agreements to determine affiliation between the franchisor and franchisee.
The franchisor must be willing to sign the new addendum for the franchise business to utilize SBA financing. No franchisees will be able to secure SBA financing if the brand does not sign the addendum.
Under the new rules, the SBA no longer reviews franchise agreements. Now, lenders and CDCs are required to review the franchise business for eligibility and assure that the franchise agreement addendum is signed.
This is good news for franchisees. The new SBA franchise agreement addendum process means franchise businesses may proceed through the loan application process more quickly and receive the needed SBA financing to purchase/build a new franchise.
To discuss these changes, or to obtain an SBA loan for your franchise, contact our offices:
In Texas call Bill Ebersole at 713-457-1650, ext. 201, or email him at bill @communitybusinessfinance.com.
In Louisiana, call Jeanne Bergeron at 1-800-462-1017, or email her at firstname.lastname@example.org.