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The Importance of SBA Approval in Searching for a Franchise

One of the most necessary and potentially complex processes when starting a new franchise business is acquiring financing. The business startup process for franchisees may benefit if their franchise system of choice is approved by the Small Business Administration (SBA). Bearing in mind the many complex aspects of starting a new franchise business, to remain empowered throughout the startup process, franchisees may consider their options at length to decide how to proceed.

A franchise system is SBA approved only after a Franchise Agreement between the franchisor and potential franchisee is accepted as in compliance with policies set by the SBA. The SBA’s grounds for lending are maintained to serve small businesses exclusively in their search for adequate and reliable funding options. Thus the SBA can review the Franchise Agreement in advance of potential franchisee financing applications.

This speeds up the processing of applications when all other aspects of the transaction are in accordance with SBA policy. Regardless of whether SBA approval occurs in advance of franchisee applications or is sought when the application is initially submitted, the SBA must approve the Franchise Agreement if SBA approved lenders are to assist with financing its fulfillment.

Acquiring the SBA’s approval is a decision made by franchise systems, which means that SBA approval is optional. Franchise systems may apply for approval should they wish to simplify the financing process for potential franchisees. When franchisors apply for approval, the SBA reviews the Franchise Agreement and considers the application. If approved, the franchise system is eligible for listing on the Franchise Registry which displays franchise systems holding SBA approval and assists franchisors in their search for lending opportunities.

A franchisor’s being registered or unregistered in the Franchise Registry does not mean that the SBA certifies the franchisor’s likelihood of success or lack thereof. Franchisees do well to research their business financing options in detail to decide whether SBA approved franchise systems offer the appropriate assistance for their startup franchise business.

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