By Beth Ewen
The U.S. Small Business Administration is issuing new rules that some believe will make it easier for franchisees to get SBA-backed loans.
The Franchise Registry was gone but now it’s back, and at least some lenders are hailing its return as good for the process of approving U.S. Small Business Administration-backed loans to franchisees.
This time around, the SBA itself will maintain a registry of approved franchise systems, those systems that meet the criteria that define a small business and whose franchisees thus are eligible for SBA loans.
Prior to 2017, a private company, FranDATA, maintained a registry that bankers and franchises depended upon as a one-stop shop, but new rules put into effect January 1 last year put the registry on ice, at least for use in the SBA loan process.
Also, under the new rules the SBA will allow franchisors to certify each year that their agreement has not changed and thus can be automatically renewed, rather than starting over each year.
“It’s a pretty wholesale change, and in my opinion swings the pendulum a little bit back to where we were prior to 2017, with some noticeable tweaks,” said Nick Jellum, president of Anastasi Jellum, a specialty law firm representing SBA lenders around the country.
He believes the new rules will speed the process, at least on paper. He said he’s spoken with several franchise attorneys “and they all seem to be on board with the new rule. Of course, like anything their trepidation is, the devil’s in the details.
“We can drop a great game plan, but if it can’t be executed…” he said, noting it’s a massive undertaking to create a database of approved franchise systems.
Lenders, too, he believes, are “going to be very pleased with it,” an opinion he was planning to test out when attending the NAGGL conference this week in Colorado Springs, Colorado, where lenders of government-backed loans gather each year. “Again, not to be a naysayer,” but lenders will also be concerned over the details.
“The way it’s written, it looks great. I’m just a realist in knowing that it’s not going to be a walk in the park,” Jellum said.
Under the rules issued in January 2017, franchisors had to sign one SBA-issued standard agreement, called an addendum and applying to every franchisee they sign up—something many franchisors refused to do, or negotiate and gain approval for each contract separately in a time-consuming exercise.
Meanwhile, lenders who wanted to make government-backed loans would have to certify themselves that a borrower is eligible for an SBA loan—and forego the government guarantee to partially reimburse them if the loan goes bad and the SBA determines the borrower wasn’t eligible after all.
The new rules, set to go into effect January 1 of 2018, will present another opportunity for the SBA to make its system more efficient, its stated goal in all of the recent rule changes.