SBA Franchise Directory Reintroduced Effective June 1, 2025

Evolution and Impact on SBA Lending

The SBA Franchise Directory has undergone significant changes since its introduction. Created with SOP 50 10 5(J) (effective Jan. 1, 2018), the directory was designed to streamline franchise loan processing by eliminating the need for lenders to review franchise documentation for affiliation or eligibility themselves. It replaced earlier systems like the Franchise Registry and SBA Franchise Findings List.

On May 11, 2023, the SBA announced it would no longer support or maintain the Franchise Directory, and the official elimination occurred with the implementation of SOP 50 10 7, which became effective Aug. 1, 2023. Prior to this elimination, SBA loan proceeds could not be used for franchised businesses unless they were listed on the directory and had an executed franchise addendum.

Looking ahead, SOP 50 10 8 (effective June 1, 2025) will reintroduce the SBA Franchise Directory but with modified requirements. The upcoming SOP 50 10 8 includes several changes that will affect how franchises are evaluated:

1. Verification Requirements: Lenders will need to implement a verification checklist ensuring all franchised borrowers are listed in the SBA Franchise Directory. This places more responsibility on lenders to confirm franchise eligibility.
2. Simplified Affiliation Rules: SBA has formally eliminated "control" as a test for affiliation in 7(a) and 504 loans. Instead, affiliation is determined by ownership factors, which greatly simplifies affiliation reviews, especially for franchisees.
3. Six-Month Lookback Period: Under SOP 50 10 8, any business with an "Ineligible Person" as an owner during a six-month lookback window is ineligible unless ownership is fully divested prior to loan issuance, which represents a significant tightening of lender due diligence requirements.

The reintroduction of the SBA Franchise Directory in SOP 50 10 8 appears to be part of a broader effort to streamline loan processing while maintaining appropriate oversight. This directory will once again serve as a reference point for lenders to determine franchise eligibility for SBA loans, but with updated verification requirements that place more responsibility on lenders.

SBA Franchise Directory in SOP 50 10 8: Key Requirements and Procedures

Overview

The SBA Franchise Directory is being reintroduced as a critical verification tool for SBA loan eligibility.

Directory Requirements

1. Mandatory Verification: SBA lenders must check the directory to determine if a franchise applicant's brand is listed before proceeding with loan applications.
2. Processing Pathways:
   1. If the brand is on the directory: Lenders may proceed with either non-delegated or delegated processing
   2. If the brand is NOT on the directory:
      1. For non-delegated loans: The application cannot be submitted to the SBA.
      2. For delegated loans: Lenders cannot approve the loan under delegated authority.
3. Multiple Agreements: When applicants operate under multiple agreements, all agreements meeting the Federal Trade Commission (FTC) definition of a franchise must be on the directory for the application to proceed.
4. Documentation Requirements:
   1. For non-delegated loans: Lenders must identify the franchise name and SBA Franchise Identifier Code in E-Tran.
   2. For delegated loans: Lenders must document that the brand is on the directory and include the SBA Franchise Identifier Code.
   3. Lenders must obtain executed franchise agreements and related documents prior to loan disbursement.

Brands Already Listed on the Directory as of May 2023

For brands that were listed on the directory as of May 2023, the franchisor/distributor will have until July 31, 2025, to execute the new SBA Franchisor Certification. During this period, the SBA lender must use the addendum indicated on the directory as well as comply with any notes included with the brand listing, and both the franchisor and franchisee must execute the addendum prior to loan disbursement. If a franchisor/distributor has not executed the Franchisor Certification by July 31, 2025, the brand will be removed from the directory.

Adding Brands to the Directory

1. Franchisors must submit required documentation to franchise@sba.gov.
2. No addendum will be needed, but SBA lenders must comply with any notes included with the brand listing. The SBA lender may proceed with the guidance provided in SOP 50 10 8.
3. SBA's review process includes:
   1. Determining if the brand meets the FTC definition of a franchise.
   2. Reviewing for additional eligibility issues.
   3. Sending franchise/distributor certification for completion.
   4. Assigning an SBA Franchise Identifier Code to eligible brands.

Special Considerations

1. Passive Businesses: Franchise Development Agreements and certain management agreements may create ineligible passive businesses.
2. Management Agreements: For businesses to be eligible, applicants must exercise "meaningful oversight," including budget approval, expenditure approval, bank account control, and employee oversight.
3. Appeals Process: Franchisors can appeal SBA's decision not to place them on the directory by submitting documentation to franchise@sba.gov.

This new framework shifts significant responsibility to lenders for verifying franchise eligibility while providing a clear, centralized system for determining which franchise brands qualify for SBA financing.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.