{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/how-does-the-franchise-rule-specifically-apply-to-determine-affiliation-for-an-independent","api_url":"https://dealroom.so/api/public/questions/how-does-the-franchise-rule-specifically-apply-to-determine-affiliation-for-an-independent","question":"How does the \"franchise rule\" specifically apply to determine affiliation for an independent dealer or licensee model?","topic":"Affiliation & size","audience":"lender","bot_mode":"lender","short_answer":"The \"franchise rule\" generally applies to traditional franchisor-franchisee relationships, but it can extend to independent dealer or licensee models if the degree of control exercised by the licensor/parent company over the licensee's operations is equivalent to that found in a franchise relationship.","rule":"Affiliation by control can be established through contractual relationships. If a licensing or dealer agreement grants the licensor significant control over the licensee's management, operations, branding, or supply chain, the SBA may deem them affiliated, requiring aggregation of their size for eligibility purposes.","example":"A small independent tire dealer operates under a licensing agreement with a large tire manufacturer. If the agreement dictates pricing, marketing, purchasing, store layout, and management practices, the lender would need to evaluate if this constitutes affiliation under the \"franchise rule\" principles, potentially combining their revenues for size eligibility.","what_lenders_check":"Lenders must meticulously review all agreements between the applicant and any licensor, dealer, or parent company to identify potential control. Misinterpreting these relationships can lead to an incorrect size determination and an ineligible borrower, impacting the guaranty.","required_facts":["Franchise rule","Independent dealer","Licensor control","Contractual agreements","Size aggregation"],"source_families":["13 CFR Part 121 - Small Business Size Regulations","SOP 50 10 - Lender and Development Company Loan Programs","Affiliation and Lending Criteria for SBA Business Loan Programs - Final Rule"],"official_sources":[{"title":"13 CFR Part 121 - Small Business Size Regulations","url":"https://www.ecfr.gov/current/title-13/chapter-I/part-121"},{"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":"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":"Franchise rule","url":"https://dealroom.so/glossary/franchise-rule"},{"term":"Licensee","url":"https://dealroom.so/glossary/licensee"},{"term":"Lease with an option to purchase","url":"https://dealroom.so/glossary/lease-with-an-option-to-purchase"},{"term":"Repair to the guaranty","url":"https://dealroom.so/glossary/repair-to-the-guaranty"},{"term":"Affiliation","url":"https://dealroom.so/glossary/affiliation"}],"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-specifically-apply-to-determine-affiliation-for-an-independent","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."]}