The U.S. Small Business Administration (SBA) released new Standard Operating Procedures (SOPs), which became effective June 1, 2025 and will impact franchisors, particularly those utilizing SBA-backed loan programs. A key component of the new SOPs is the reinstatement of theSBA Franchise Directory, which was first introduced in 2018 but discontinued in May 2023. Franchisors desiring to make SBA financing available to their franchisees will want to take action to ensure their brands are listed on the reinstated directory.
Like its predecessor, the reinstated SBA Franchise Directory aims to streamline the process for lenders to determine if a brand meets the FTC definition of a franchise and whether there are additional issues SBA lenders must consider. Under the new SOPs, the required use of an SBA Addendum (either Form 2462 or a negotiated addendum) is being replaced by the one-time signing of a "Franchisor Certification" acknowledging the franchisor's ongoing commitment to comply with the requirements necessary to be listed on the reinstated SBA Franchise Directory. Many requirements of the new Franchisor Certification are consistent with those included in Form 2462; however, additional obligations have been added, including that a franchisor is prohibited from unilaterally sharing, commingling, or withdrawing funds from a franchisee's bank account, except as permitted for regularly scheduled payments and payments otherwise authorized in the franchise agreement.
What Do Franchisors Need to Do?
Franchisors currently listed on reinstated SBA Franchise Directory:
- Brands that were listed on the SBA Franchise Directory as of May 2023, and wish to remain on the reinstated SBA Franchise Directory, will have untilJuly 31, 2025to review and sign the new Franchisor Certification, and submit it to the SBA.
- Until a franchisor's Franchisor Certification has been received and processed by the SBA, the franchisor must continue to use the SBA Addendum listed in the reinstated SBA Franchise Directory, and the franchisor and lenders must continue to comply with any notes listed in reinstated SBA Franchise Directory.
- Once a franchisor's Franchisor Certification has been received and processed by the SBA, the franchisor will no longer be required to use an SBA Addendum, although the franchisor and lenders will still be required to comply with any notes listed in the reinstated SBA Franchise Directory.
- If a franchisor does not sign the Franchisor Certification by July 31, 2025, the brand will be removed from the reinstated SBA Franchise Directory, and its franchisees will not be eligible for SBA-backed financing.
Franchisorsnotlisted on reinstated SBA Franchise Directory:
- Brands that were not listed on the SBA Franchise Directory as of May 2023, and wish to be included on the reinstated SBA Franchise Directory, must submit to the SBA their most current Franchise Disclosure Document (FDD), including the current franchise agreement and all ancillary documents that franchisees are required to sign.
- Complete submissions will be reviewed in the order in which they were received by the SBA.
- After the SBA reviews the materials submitted and determines the brand is eligible for SBA financing, the franchisor of the brand must then review and sign the Franchisor Certification provided by the SBA agent that conducted the review and submit it to the SBA.
- Once a franchisor's Franchisor Certification has been received and processed by the SBA, the franchisor's franchisees will be eligible for SBA-backed financing, although the franchisor and lenders will be required to comply with any notes listed in the reinstated SBA Franchise Directory.
If the SBA determines a franchise brand's business model is ineligible, even after certification, its brand will not be listed on the reinstated SBA Franchise Directory.
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.
