More lending dollars are going to franchises, the SBA says.
Staff Report
The U.S. Small Business Administration has launched a tool that streamlines the process for entrepreneurs, including franchisees, looking to access capital.
The new SBA Franchise Directory is updated every other week to keep it current and has added 566 new brands since the new policy was announced earlier this year, bringing the total eligible brands to 2,566. This move follows the Franchise Directory in 2023.
“It’s a one stop shop to check the growing list of eligible brands for SBA financing. Since its establishment, the Directory and new procedures have received extremely positive feedback from the stakeholders participating in the process,” SBA Associate Administrator William Manger said.
The eligibility status of the franchise brands on this list are checked and cleared by the SBA cutting the finance processing time and making it more efficient. Once franchisors have filed the proper paperwork, lenders can process loans without further review of the franchise documents. The vast majority of new brands are reviewed within 14-21 days.
“This is extremely important as the SBA has seen an increase in the number of entrepreneurs opening franchises, especially among women,” Manger said.
The SBA also noted that it has seen a year-over-year increase of over 17% in the dollars going to franchises and an over 18% increase in the dollars going to women-owned franchises.
The new tool is sitting well with the International Franchise Association.
“We applaud the SBA’s efforts to increase efficiency in the financing process for franchisees by restoring the Franchise Directory,” said Michael Layman, IFA chief advocacy officer. “As a centralized and verified location for lenders to check a franchise’s eligibility for SBA financing, the Franchise Directory was a key tool for lenders to efficiently process franchisee loan applications. Its elimination disrupted the development of franchised businesses, causing lenders to pull back from franchise lending, denying would-be entrepreneurs access to critical sources of start-up capital.
According to FRANdata, the Arlington, Virginia-based franchise marketing and consulting firm, an estimated 20% of all SBA loans go to franchises.
The SBA Directory has also served as a tool for prospective franchisees as they evaluate franchise opportunities.
In reinstating the Franchise Directory, the SBA identified opportunities to optimize the process for determining if a franchise meets the criteria for listing in the directory. Key improvements advocated for by IFA and reflected in the updated version of the Franchise Directory include:
- Replacing the SBA Addendum (Form 2462 or negotiated addendum) with a certification signed by the franchisor acknowledging the conditions required to be listed on the Directory, including many conditions franchisors will recognize from the prior Franchise Directory.
- Franchisors previously included in the Directory may sign the certification within a specified period to remain on the Directory.
- Franchisors not previously included in the Directory must submit an application to the SBA demonstrating they meet the eligibility criteria for listing in the Directory.
- Listing on the Franchise Directory will remain at no cost to franchisors. A franchisor must be listed in the Directory for its franchisees to access SBA funding.
The eligibility status of the franchise brands on this list are checked and cleared by the SBA cutting the finance processing time and making it more efficient. Once franchisors have filed the proper paperwork, lenders can process loans without further review of the franchise documents. The vast majority of new brands are reviewed within 14-21 days.
Potential franchises interested in being listed on the Directory should email copies of their Franchise Disclosure Document, the Franchise Agreement (or license or other type of agreement), and any other documents that the franchisor will require the franchisee to execute to franchise@sba.gov.
There are no fees for franchises that want to be added to the Directory and it is accessible to everyone visiting SBA’s website (http://www.sba.gov).
