Best Practices: Franchise Lending under SOP 50 10 8

What’s old is new again.  Effective June 1, 2025, SOP 50 10 8 (“SOP”) brings back the SBA Franchise Directory (“Directory”) in a welcome blast from the past for SBA lenders.  See https://www.sba.gov/document/support-sba-franchise-directory.  The SOP shifts responsibility for franchise eligibility reviews from the lender back to the SBA.  Many seasoned SBA lenders will recall the reinstated franchise eligibility guidelines, but let’s briefly review the new process under the SOP.

What’s a franchise?

SBA redefines a franchise that is subject to SBA’s franchise eligibility review process as a relationship or agreement pertaining to the Applicant that meets the Federal Trade Commission (FTC) definition of a “franchise” in 16 CFR § 436.  For SBA lending purposes all agreements governed by the Petroleum Marketing Practices Act (“PMPA”) such as jobber or fuel supply agreements are included in the definition of a franchise.  Additionally, any dealer agreement with a car manufacturer that meets the FTC definition of a franchise will also be subject to SBA’s franchise eligibility review process.

What’s an eligible franchise?

Under the SOP, if a brand or franchise agreement appears on the Directory, it is eligible for SBA financing.  If the brand or franchise requires a management agreement separate from the franchise agreement, then SBA requires the lender to review such management agreement for eligibility.  If an agreement meets the FTC definition of a franchise, it must be on the Directory to proceed with the SBA loan request.

Lenders should note that SBA instituted an interim process for franchise eligibility in effect between June 1 and July 31, 2025.  Per SBA Information Notice 5000-866746, for brands that were listed on the Directory as of the date of its last issuance in May 2023, the Franchisor/Distributor will have until July 31, 2025, to execute the new SBA Franchisor Certification.  During this period, lenders must use the addendum indicated on the Directory (either the SBA Form 2462 Addendum or SBA Negotiated Addendum) and comply with any notes included with the brand’s listing.  If a brand does not execute the SBA Franchisor Certification by July 31, 2025, the brand will be removed from the Directory.  At all times under the SOP, lenders must follow any notes for a brand posted on the Directory.

What franchise documents are required?

SBA indicated in the new SOP that retaining and reviewing a copy of the franchisor’s Franchise Disclosure Document (FDD), while prudent, is no longer required.  SBA does require and Lenders must obtain and retain evidence of the brand’s approval on the Directory at the time of loan approval, and a copy of the applicant’s fully executed franchise documents, including any required addendum, prior to initial loan disbursement for 7(a) loans and prior to debenture funding for 504 loans.  If a Lender determines that an agreement does not meet the FTC definition of franchise, it must include its analysis in its credit memo or credit file.

We will provide updates on any further changes or developments as they relate to the new franchise eligibility and review process. For assistance with franchise lending and loan closings, please contact us at info@starfieldsmith.com.