{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/how-does-the-franchise-rule-affect-affiliation-calculations-for-sba-7-a-eligibility","api_url":"https://dealroom.so/api/public/questions/how-does-the-franchise-rule-affect-affiliation-calculations-for-sba-7-a-eligibility","question":"How does the 'franchise rule' affect affiliation calculations for SBA 7(a) eligibility?","topic":"Affiliation & size","audience":"lender","bot_mode":"lender","short_answer":"The 'franchise rule' states that a franchisee is generally not affiliated with its franchisor based solely on the franchise agreement, but other affiliation tests may still apply.","rule":"SBA rules specifically exempt franchisor-franchisee relationships from affiliation based on the franchise agreement itself, provided the agreement doesn't give the franchisor unusual control over the franchisee's operations. However, if the franchisor also has an ownership stake in the franchisee or provides significant financial assistance that implies control, other affiliation rules might apply.","example":"A borrower applies for a 7(a) loan to open a new fast-food franchise. The lender reviews the franchise agreement and confirms it's standard and listed on the SBA Franchise Directory. The borrower will not be deemed affiliated with the large franchisor solely due to the franchise agreement.","what_lenders_check":"Lenders must review the specific franchise agreement to ensure it meets SBA standards and does not grant the franchisor undue control. Any deviations or unusual clauses require careful analysis to avoid potential affiliation issues.","required_facts":["Franchise rule","Franchisor","Franchisee","Affiliation exemption","Control"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","13 CFR Part 121 - Small Business Size Regulations","Affiliation and Lending Criteria for SBA Business Loan Programs - Final Rule"],"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 121 - Small Business Size Regulations","url":"https://www.ecfr.gov/current/title-13/chapter-I/part-121"},{"title":"Affiliation and Lending Criteria for SBA Business Loan Programs - Final Rule","url":"https://www.federalregister.gov/documents/2023/04/10/2023-07173/affiliation-and-lending-criteria-for-the-sba-business-loan-programs"}],"related_questions":[{"question":"When does a contractual relationship between two businesses trigger affiliation for size standard calculations?","url":"https://dealroom.so/for-lenders/questions/when-does-a-contractual-relationship-between-two-businesses-trigger-affiliation-for-size-s"},{"question":"How does ownership of options or warrants affect affiliation determination for SBA size standards?","url":"https://dealroom.so/for-lenders/questions/how-does-ownership-of-options-or-warrants-affect-affiliation-determination-for-sba-size-st"},{"question":"What are the size standard requirements for a business applying for a 7(a) loan if it operates internationally?","url":"https://dealroom.so/for-lenders/questions/what-are-the-size-standard-requirements-for-a-business-applying-for-a-7-a-loan-if-it-opera"},{"question":"What specific scenarios involving shared directors, officers, or key employees constitute 'common management' triggering affiliation for SBA size determination?","url":"https://dealroom.so/for-lenders/questions/what-specific-scenarios-involving-shared-directors-officers-or-key-employees-constitute-co"},{"question":"Under what conditions does a shared economic interest trigger affiliation for SBA size standard purposes?","url":"https://dealroom.so/for-lenders/questions/under-what-conditions-does-a-shared-economic-interest-trigger-affiliation-for-sba-size-sta"},{"question":"How does the 'totality of the circumstances' rule apply when determining affiliation for SBA size standards?","url":"https://dealroom.so/for-lenders/questions/how-does-the-totality-of-the-circumstances-rule-apply-when-determining-affiliation-for-sba"}],"related_terms":[{"term":"Affiliation Rule","url":"https://dealroom.so/glossary/affiliation-rule"},{"term":"Aggregate SBA 7(a) Loan Eligibility","url":"https://dealroom.so/glossary/aggregate-sba-7-a-loan-eligibility"},{"term":"SBA 7(a) program","url":"https://dealroom.so/glossary/sba-7-a-program"},{"term":"SBA 7(a) loan","url":"https://dealroom.so/glossary/sba-7-a-loan"},{"term":"Eligibility Rule","url":"https://dealroom.so/glossary/eligibility-rule"},{"term":"Size Eligibility","url":"https://dealroom.so/glossary/size-eligibility"}],"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-the-franchise-rule-affect-affiliation-calculations-for-sba-7-a-eligibility","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."]}