History of the Franchise Registry

Objectives of the New System

The Franchise Registry will help SBA and its participating lenders make consistent eligibility decisions, speed access to SBA financial assistance, streamline processing and recognize industry-specific factors during the loan review process. The Registry enables lenders and SBA local offices to verify a franchise system’s lending eligibility through the Internet. This reduces red tape, time and costs for all concerned.

The SBA Approval Process

Since by law SBA can only lend to small businesses, it must verify that its borrowers are small businesses and will use the loan proceeds appropriately. SBA or one of its participating lenders has always reviewed relevant franchise documents whenever a franchisee seeks an SBA loan. The franchisor cannot exert so much control over the franchisee’s daily operations and profits that it becomes the real owner of the business.

As the number of franchisees seeking SBA loans has grown, the burden of managing SBA’s review process has increased. Without centralized review, this can lead to:

1. Inconsistent decisions – since a franchisor’s contracts can be submitted to any of 69 local offices, the same contract may be deemed eligible in one office and ineligible in another.
2. Excessively long processing time – with heavy volume, the review process can take weeks or even months; and
3. Failure to understand industry differences – SBA is aware of at least 30 main franchise industry groups and 211 subgroups. Some bear no resemblance to others from a financial or operational standpoint. Local SBA lenders or offices lack the resources to distinguish and react properly to so many different industry-specific situations.

The Franchise Registry attacks all of these problems. By centralizing the review process, SBA can ensure consistency, speed and sensitivity to industry-specific considerations.

The Franchise Registry Process

To take advantage of the Registry, franchisors complete a single worksheet for each of their programs. They certify that their franchise documents comply with SBA’s Eligibility Guidelines, and identify key provisions. The franchisor submits its completed worksheet to FRANdata (the Registry operator), along with an electronic copy of all agreements which franchisees must execute and an application fee. FRANdata reviews the worksheet and documents, and submits recommendations to an SBA Review Unit, which approves the documents or contacts the franchisor to resolve any outstanding issues.

Upon receipt of SBA Review determinations, FRANdata lists eligible systems on a public website, identifying the date of eligibility. FRANdata also loads a copy of the franchise system’s approved agreements on a private website, accessible only to SBA, SBA Participating Lenders and Certified Development Companies. The private site has search engines which allow registered users to find all contract provisions related to the eligibility guidelines.

Under this new system, once a franchise is centrally approved, there is no additional review. Prospective franchisees provide SBA lenders with a certification from the franchisor (or its counsel) stating that there have been no revisions to relevant provisions in the agreements a franchisee must sign since the agreements were deemed eligible by SBA. The SBA lender relies on this certification and the website listing, without any further review or time delay. If the certification indicates there have been changes to relevant provisions of the agreements, FRANdata will review the changes and recommend whether the franchisor’s registration should continue. Of course, the lender must still independently review and approve other relevant financial and transactional information before making the loan.

About the SBA

About FRANdata