Small Business Administration reinstates Franchise Directory effective June 1
The U.S. Small Business Administration (SBA) recently announced that it would reinstate a modified version of the SBA Franchise Directory this summer, which was previously eliminated in August 2023. The directory was originally established in 2018 and was intended to allow the maintenance of a running list of brands and/or franchise systems that met eligibility requirements for small business financing. Under the previous version, franchised businesses could not obtain an SBA loan unless they were listed in the directory, and the existence of the directory allowed franchise businesses to work toward obtaining an SBA loan in a more streamlined manner.
The SBA has now released SOP 50 10 8, a significant revision to its Standard Operating Procedures governing the 7(a) and 504 loan programs, effective June 1, 2025. This update replaces SOP 50 10 7.1 and introduces comprehensive changes affecting SBA lenders and franchise businesses, along with many other types of businesses.
The reinstated SBA Franchise Directory will include all brands reviewed by the SBA as eligible for SBA financial assistance. If a brand meets the definition of a franchise, it must be listed in the franchise directory on the SBA’s website. The SBA will include brands that may appear to be franchises but do not meet the FTC's definition of a franchise on the SBA directory website to help avoid confusion. The SBA directory website will include whether the SBA determined that the brand meets the FTC definition of a franchise, a franchise identifier Code, if applicable, and whether there are any additional issues the lender should consider (including, but not limited to, whether the business will be open to all or if there are any other agreements that must be reviewed). Lenders must verify that any franchise or similar relationship meets the FTC definition and is listed in the Directory before proceeding with a loan application, but will not need to review a franchise agreement if it is listed in the directory. If a franchise operates under multiple product lines or brands, all of the brands must be listed in the directory for the franchise to be eligible.
If a franchisor wants to add its brand to the directory, a franchisor can submit its franchise disclosure document and all other documents the franchisor requires a franchisee to sign to franchise@sba.gov for an eligibility determination. The SBA will review and may request additional information as needed. If the SBA determines that a franchisor is eligible, the SBA will send a Franchisor or Distributor Certification, list the brand on the SBA Franchise Directory, and assign a Franchise Identifier Code. The SBA reserves the right to remove a franchise if it determines that the entity has submitted false information or withheld material information.
After the franchise directory is reinstated, if an SBA lender is considering making a loan to a franchisee, the lender can then identify the name of the franchise and the Franchise Identifier Code when completing the application. If the business is listed in the directory, no other franchise documentation is required unless there are other management agreements that may point to some other entity having control over the business.
As detailed in the SOP, the Small Business Act “defines a small business concern as one which is independently owned and operated, and which is not dominant in its field of operation.” After 2023, franchise agreements do not need to be reviewed for control generally, but if a brand is not listed on the SBA’s reinstated franchise directory, a franchise or similar agreement does need to be reviewed to determine whether the agreement gives someone else the ability to fully manage the business, including the business’ financial affairs. A passive business is not eligible for a SBA loan.
If a brand was previously listed in the franchise directory as of May 2023, a franchisor can execute the new SBA franchisor certification until the end of July to avoid having to go through the eligibility process again. The reinstatement and modification of the SBA Franchise Directory should, ultimately, make it easier for franchisors, franchisees, and SBA lenders to consider and apply for SBA loans in a more streamlined manner. McDonald Hopkins’ franchise team can assist you with the process and help you consider what is needed.
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