Industry Update: SBA Proposes Changes to Popular Franchise Loan Option

FRANdata is one of FranNet’s most valuable partners, routinely offering some of the franchising industry’s most helpful and effective advice. The organization is a purveyor of market research and insights into industry dynamics, brand measurement standards, continuity rates, and the latest in franchise financing news.

Just over a month ago, FRANdata sent representatives to the National Association of Government Guaranteed Lenders (NAGGL) Spring Conference, where they heard the latest about proposed changes to the Small Business Association’s (SBA) primary lending programs. Below are some of the main takeaways.

Summer Updates Coming

In an effort to maintain momentum in the post-pandemic recovery, the SBA is looking to streamline their Community Advantage (CA) Pilot Program. This is an initiative meant to bolster lending and opportunity for small businesses in underserved communities. This is important because the guidelines for this program are set to serve as an acting blueprint for updates and rule changes for the SBA’s 7(a) Loan Program, one of the most popular forms of funding used for the purchase of franchises.

Three Proposed Updates

At some point this summer, the SBA is looking to streamline the rules for the 7(a) Loan Program with the following proposed rule changes:

  • The SBA is looking to simplify affiliation, which could pay big dividends for borrowers. When determining affiliation, the SBA would like to update the process by removing the principle of control that one entity has over another. Under the current rules, the concept of control is often a confusing arrangement among both applicants and lenders.
  • The SBA is looking at ways to discount an applicant or any of their associate’s criminal records when determining character. Although lenders are still free to implement their own standards, if the new rules are adopted, no longer will a previous felony conviction automatically disqualify an applicant for SBA-related financing.
  • In an effort to proliferate and facilitate financing for Employee Stock Ownership Programs (ESOPs) and Co-ops, the proposed rule change will expand to assist employers with less than 20 employees. An alteration to the partial ownership rule should be a big step forward.

The effort to find funding and finance options can be one of the most challenging aspects of the franchise investigative process. However, FranNet is fully capable of advising clients and helping them navigate their way to a tailored solution that fits their needs. We’ll continue to monitor these proposed rule changes for prospective franchisees and alert you to any new decisions related to the SBA’s 7(a) Loan Program.

Whether you have your financing in place yet or not, FranNet can partner with you to help you determine the perfect match in a franchise business opportunity. Getting started is simple and involves setting up a no-cost, no-obligation appointment with one of our qualified FranNet representatives. Not sure what type of business you were meant to own? That’s fine, too – you just need to reach out and talk with one of our franchise experts today! Together, we can find a business opportunity that aligns with your lifestyle and income-oriented goals.

Jun 27, 2022