title of your presentation · for each application involving an applicant franchisee: 1. lender...
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Franchise Changes
Will be effective January 1, 2017
The primary purpose for the updated SOP 50 10 5 (I):
To streamline the procedures for determining size
eligibility of franchise applicants based on affiliation with
franchise systems
This SOP update will apply to all applications received by SBA on or after
January 1, 2017
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Franchise Changes
Regulation Change Approved July 27, 2016
CFR§121.301(f)(5) Affiliation based on franchise and license agreements. The restraints
imposed on a franchisee or licensee by its franchise or license
agreement generally will not be considered in determining whether
the franchisor or licensor is affiliated with an applicant franchisee or
licensee provided the applicant franchisee or licensee has the right to
profit from its efforts and bears the risk of loss commensurate with
ownership. SBA will only consider the franchise or license
agreements of the applicant concern.
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Franchise Changes
The changes replace the franchise review process in SOP 50 10 5 (H)
SBA will no longer:
• Review franchise and license agreements to confirm the size eligibility of
applicant franchisees based on their relationship with a franchise system.
• Maintain a centralized listing of franchise systems or franchise findings list with
individual franchise addendums.
SBA will now:
• Require a standard SBA Addendum to Franchise Agreement be executed by the
franchisor and franchisee.
• Lender will enter the identity of Franchises in Etran and/or SBA ONE when
submitting loan applications.
3
Franchise Changes
The SBA Addendum to Franchise Agreement addresses SBA’s
concerns as to whether the applicant is small based on their
relationship with a Franchise system.
If the Franchisor and Franchisee have signed the “SBA Addendum to
Franchise Agreement”, SBA will not consider the applicant
Franchisee and their Franchisor affiliated for the applicant size
determination.
4
General Eligibility Stays the Same
Lenders remain responsible to ensure that the applicant
meets all SBA eligibility requirements
(see Subpart B, Chapter 2 of SOP 50 10)
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Size
& Affiliates
Passive
Business Model
Franchise Eligibility Change
For each application involving an applicant franchisee:
1. Lender must obtain the SBA “Addendum to Franchise
Agreement” (SBA Form 2462 will be located in
Appendix 9 of this SOP) executed by the franchisor and
applicant franchisee. This standard Addendum takes the
place of individually negotiated addendums and annual
reviews. The terms of the Addendum are not subject to
system by system negotiation.
2. Lender will follow instructions in SBA One and/or E-
Tran to identify the franchise system with which the
franchise applicant is working.
6
Franchise Identifier
When entering loan via ETRAN or SBA ONE, Lender is
prompted to answer the question, “is this a Franchise” with
yes or no.
A drop down box will appear on yes answers with a list of
Franchise names from which the Lender selects the
franchise that the applicant owns or will purchase.
(This currently happens in both systems.)
If Franchise name is not on list, please send a request for support to :
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Previous
10
New Franchise Process
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Franchise Process Start End
Lender obtains
Addendum
To Franchise
Agreement *
(Signed by
both Franchisor
and
Franchisee)
Lender Obtains
Fully Executed
Franchise
Agreement
Lender
Identifies
Franchise in
ETRAN or
SBAONE
Entry
(follow
directions)
*Can be conditioned for prior to disbursement
Original documents are to be maintained in file for life of loan
Questions?
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You can send your
FRANCHISE questions to:
SBA Information Notice 5000-1399