{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/how-does-a-lender-determine-if-a-franchise-agreement-contains-impermissible-control-provis","api_url":"https://dealroom.so/api/public/questions/how-does-a-lender-determine-if-a-franchise-agreement-contains-impermissible-control-provis","question":"How does a lender determine if a franchise agreement contains impermissible control provisions not listed on the Directory?","topic":"Franchise eligibility","audience":"lender","bot_mode":"lender","short_answer":"Lenders must carefully review the franchise agreement for unlisted franchises against SBA guidelines, identifying provisions that grant the franchisor excessive control over the franchisee's operations, finances, or management.","rule":"If a franchise is not on the SBA Franchise Directory, the lender must conduct a thorough, independent review of the franchise agreement. They look for specific clauses that, for instance, dictate pricing, suppliers, operating hours, marketing campaigns, or financial management to an extent that the franchisee does not retain control over its daily business operations. Such impermissible control provisions would render the franchisee ineligible.","example":"A lender reviews an unlisted franchise agreement that states the franchisor must approve all local pricing decisions and dictates all suppliers, even if local options are cheaper. The lender would identify these as impermissible control provisions, making the franchisee ineligible for a 7(a) loan.","what_lenders_check":"Lenders are responsible for ensuring that unlisted franchises meet eligibility criteria. They must be experts in identifying problematic control provisions within complex franchise agreements, documenting their review process thoroughly for SBA compliance.","required_facts":["Unlisted franchise","Franchise agreement review","Impermissible control","Operational independence","Lender due diligence"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","13 CFR Part 120 - Business Loans","7(a) Loan Program Terms, Conditions, and Eligibility"],"official_sources":[{"title":"SOP 50 10 - Lender and Development Company Loan Programs","url":"https://www.sba.gov/sites/default/files/2025-05/SOP%2050%2010%208%20Technical%20Updates%20effective%206.1.2025.docx"},{"title":"13 CFR Part 120 - Business Loans","url":"https://www.ecfr.gov/current/title-13/chapter-I/part-120"},{"title":"7(a) Loan Program Terms, Conditions, and Eligibility","url":"https://www.sba.gov/partners/lenders/7a-loan-program/terms-conditions-eligibility"}],"related_questions":[{"question":"What are the specific criteria for a new franchise model to be included on the SBA Franchise Directory?","url":"https://dealroom.so/for-lenders/questions/what-are-the-specific-criteria-for-a-new-franchise-model-to-be-included-on-the-sba-franchi"},{"question":"What are the specific requirements for a lender to obtain an approved franchise agreement for a 7(a) loan when the franchise is not listed on the SBA Franchise Directory?","url":"https://dealroom.so/for-lenders/questions/what-are-the-specific-requirements-for-a-lender-to-obtain-an-approved-franchise-agreement-"},{"question":"Which specific provisions in a franchise agreement raise red flags for undue franchisor control, making it ineligible for a 7(a) loan?","url":"https://dealroom.so/for-lenders/questions/which-specific-provisions-in-a-franchise-agreement-raise-red-flags-for-undue-franchisor-co"},{"question":"Can an existing franchise location that is not currently listed on the SBA Franchise Directory be eligible for a 7(a) loan?","url":"https://dealroom.so/for-lenders/questions/can-an-existing-franchise-location-that-is-not-currently-listed-on-the-sba-franchise-direc"},{"question":"How does the SBA determine if a franchise agreement grants the franchisor 'undue control' over the franchisee, impacting 7(a) eligibility?","url":"https://dealroom.so/for-lenders/questions/how-does-the-sba-determine-if-a-franchise-agreement-grants-the-franchisor-undue-control-ov"},{"question":"Can a franchise system with a foreign-based franchisor be eligible for a 7(a) loan if the business operates in the U.S.?","url":"https://dealroom.so/for-lenders/questions/can-a-franchise-system-with-a-foreign-based-franchisor-be-eligible-for-a-7-a-loan-if-the-b"}],"related_terms":[{"term":"Control Agreement","url":"https://dealroom.so/glossary/control-agreement"},{"term":"Franchise agreement","url":"https://dealroom.so/glossary/franchise-agreement"},{"term":"Account control agreement","url":"https://dealroom.so/glossary/account-control-agreement"},{"term":"Franchise Agreement Addendum","url":"https://dealroom.so/glossary/franchise-agreement-addendum"},{"term":"Unlisted Franchise Agreement","url":"https://dealroom.so/glossary/unlisted-franchise-agreement"},{"term":"Sub-franchise agreement","url":"https://dealroom.so/glossary/sub-franchise-agreement"}],"related_tools":[{"name":"SBA 7(a) payment & fee calculator","url":"https://dealroom.so/sba-7a/calculator"},{"name":"Find an active SBA 7(a) lender","url":"https://dealroom.so/lenders"}],"data_freshness":{"last_reviewed":"2026-06-13","sba_rule_sources_checked_through":"2026-06-13"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/for-lenders/questions/how-does-a-lender-determine-if-a-franchise-agreement-contains-impermissible-control-provis","source_type":"DealRoom Q&A"},"caveats":["Grounded in the current SBA rulebook; verify against official sources before relying on it for a live deal.","Not legal, tax, or financial advice and not an approval decision."]}