icon on Effective June 1, 2025, the United States Small Business Association (SBA) will reinstate the SBA Franchise Directory, which the administration had eliminated in 2023. The SBA Franchise Directory is a centralized resource that helps lenders determine the eligibility of franchise brands for SBA loans. It exists to streamline the loan approval process by providing a verified list of franchises that meet SBA requirements, significantly reducing paperwork and delays.
Being listed on the SBA Franchise Directory offers several advantages for franchisors: franchisees of listed brands can access SBA-backed loans, which are crucial for business growth and development. Inclusion in the directory signals that the franchise meets SBA standards, enhancing its credibility with lenders and potential franchisees; and lenders can quickly verify eligibility, speeding up the loan approval process and reducing administrative burdens. Understanding the requirements for listing and taking the necessary steps to comply will simplify your franchisees’ ability to obtain SBA guaranteed loans.
Beginning in June, when a franchisee seeks SBA-backed financing, lenders will be required to verify that the franchise system is listed in the Franchise Directory. To ensure that their franchisees remain eligible for SBA financing, franchisors should:
- Verify listing: Ensure your brand is listed on the SBA Franchise Directory. Submit required documentation to franchise@sba.gov if not listed.
- Review Agreement: Review your franchise agreements to ensure that they comply with SBA eligibility criteria. If they don't, adjust them accordingly. Certain types of agreements may not be eligible for SBA-backed financing if they constitute "passive businesses."
- Execute Certification: Once you have confirmed that your agreements meet the criteria, you will need to execute and return the SBA Franchisor Certification by July 31, 2025. Importantly you will need to take this step even if your brand was previously listed on the Franchise Directory before it was eliminated.
Upcoming Deadline for Previously-Listed Brands:
For brands that were listed on the directory as of May 2023, you will have until July 31, 2025 to execute the new SBA Franchisor Certification. During this period, the SBA lender must use the addendum indicated on the directory as well as comply with any notes included with the brand listing, and both the franchisor and franchisee must execute the addendum prior to loan disbursement. If a franchisor/distributor has not executed the Franchisor Certification by July 31, 2025, the brand will be removed from the directory.
If you have questions about the upcoming changes to the SBA Franchise Directory or need assistance, please contact Matthew Kreutzer of Howard & Howard.