March 13, 2013
Best Practices: Navigating the Updated SBA Franchise Registry
by Starfield & Smith
There are important changes to the SBA Franchise Registry maintained by FRANdata that every SBA lender needs to know. Some will make the lenders job easier and some may generate confusion until lenders become experienced at using the new features. For purposes of this article, the terms “franchise,” “franchisor” and “franchisee” also mean “license,” “licensor” and “licensee” and their relatives – the dealers, distributors, agents and the like.
Starting with the good news, the SBA is now reviewing all of the “relevant documents” furnished by the franchisor when it wants to be listed on the Registry in addition to reviewing the Franchise Agreement for eligibility. If the SBA approves the Franchise Agreement, that agreement and any approved additional agreements will all be listed on the Certificate of Franchise Documents that the franchisor will be asked to sign, with approval dates and boxes to be checked if the borrower is being asked to sign them.
Step #1 – The lender or the third party advisor to the lender logs into the Registry. The first screen will ask for the
Brand, Keyword, FRUNS#:
[ abc ]
The Lender clicks on the box under “Brand, Keyword, FRUNS#” and starts typing. There may already be some suggested names. Recently Zaxby’s was used to illustrate some new features of the Registry. When I started to type Zax. the following options appeared: Zaxby’s Reaturant, zaxby’s Restaurant and Zaxby’s. I clicked on Zaxby’s Reaturant and got a “NO RECORDS” response. Same with zaxby’s Restaurant. I finally typed in Zaxby’s and got the Brand name – Zaxby’s, the Franchisor name – Zaxby’s Franchise, Inc. and a View of all the franchise documents for the year in question. FRANdata gave this Warning: DO NOT TYPE IN MORE THAN NECESSARY. Short is better!
Step #2- If the franchisor’s name appears below the box where you typed its name, the following information will appear:
Brand Name: ABC Seamless
Franchise Name: ABC, Inc.
Industry: Building & Construction
Step #3 – The next step is to figure out if the agreement your borrower will be signing or has signed matches the one on the Registry, so click on View and it will take you to this screen:
Enter the year of your agreement:
[ text box]
or Choose from Available Years
Once the Franchisor confirms the year of the Franchise Agreement the borrower will be signing, the Franchisor should be asked to sign the Certificate for the specified year with the boxes checked for the approved relevant documents the borrower will also be signing. If there are other documents the borrower will be asked to sign that are not approved and listed on the Certificate, each of those documents will need to be reviewed for eligibility.
When the lender clicks on the Agreement next to the franchisor’s name, the following statement pops up: Please remember: you do not need to compare this Agreement for eligibility purposes. However, prudent lending suggests that you read the Agreement and FDD for credit concerns. Our franchise reviews almost always identify provisions that may not bear directly on eligibility but still have the potential to result in repairs due to credit underwriting decisions.
What if your borrower’s agreement year does not match the agreement years on the Registry? In that case you will have to require review of the agreement for eligibility. Reading any SBA- required Addendum may provide some guidance to the issues the SBA has had to resolve with the franchisor to make the agreement eligible, but lenders should not rely on those Addenda to resolve all eligibility issues since any agreement not on the Registry may contain other eligibility issues.
In an effort to get lenders as much information about the world of franchising, FRANdata has added a feature that lists every franchise system known to FRANdata and can lead to “eligibility confusion syndrome.” On the first screen on the FRANdata web site, you will see the following:
Email Address: [ text box ]
[ text box ]
Search the Registry
Search by Brand Name, Industry, Franchisor, or Keyword:
[ text box ]
If a lender enters a franchisor name in the box under “Search the Registry,” a screen will appear and, if the franchise system has no agreements approved for eligibility by the SBA, you will see a line at the top that states:
“The Franchise Registgry lists ALL brands franchising in the United States. Each brand has a franchising status, a FRUNS#, and each franchise company may or may not be eligible for SBA loans.”
It is really important that lenders realize that finding the name of a franchisor in a search of the Registry DOES NOT MEAN the franchise agreement has been approved as eligible by the SBA. There is now a difference between being IN the Registry (all franchises) and being ON the Registry (franchisor has one or more agreements approved for SBA loans).
We at Starfield & Smith are happy to help lenders navigate the sometimes tricky waters of the SBA registry system. For more information about how to navigate through the updated SBA Franchise Registry or about Franchises, please contact us at (215) 542-7070.