{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/how-does-the-sba-determine-undue-control-by-a-franchisor-in-a-franchise-agreement-making-i","api_url":"https://dealroom.so/api/public/questions/how-does-the-sba-determine-undue-control-by-a-franchisor-in-a-franchise-agreement-making-i","question":"How does the SBA determine 'undue control' by a franchisor in a franchise agreement, making it ineligible for 7(a) financing?","topic":"Franchise eligibility","audience":"lender","bot_mode":"lender","short_answer":"The SBA reviews franchise agreements for provisions that grant the franchisor excessive control over the franchisee's business operations, finances, or management, which can render the franchisee ineligible.","rule":"SBA's franchise review process ensures that the franchisee has sufficient independence to manage its business. Agreements with 'undue control' provisions, such as those that dictate pricing, require mandatory purchases from the franchisor at non-competitive prices, or grant the franchisor the right to terminate without cause, are deemed ineligible. The SBA Franchise Directory lists pre-approved agreements.","example":"A lender reviews a franchise agreement not on the SBA directory. It contains a clause stating the franchisor has the right to set all product prices and mandates purchasing specific raw materials exclusively from the franchisor at a fixed, non-negotiable rate. These clauses indicate undue control and would likely make the franchise ineligible.","what_lenders_check":"Lenders must carefully review franchise agreements, especially for unlisted franchises, to identify any clauses that limit the franchisee's independence in a way inconsistent with SBA policy. This requires a thorough understanding of what constitutes 'undue control'.","required_facts":["Franchisor control","Pricing authority","Mandatory purchases","Termination clauses","Franchise Directory status"],"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":"How does a lender determine if a franchise agreement contains impermissible control provisions not listed on the Directory?","url":"https://dealroom.so/for-lenders/questions/how-does-a-lender-determine-if-a-franchise-agreement-contains-impermissible-control-provis"},{"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"}],"related_terms":[{"term":"Franchisor Undue Control","url":"https://dealroom.so/glossary/franchisor-undue-control"},{"term":"Undue control","url":"https://dealroom.so/glossary/undue-control"},{"term":"Franchisor Control","url":"https://dealroom.so/glossary/franchisor-control"},{"term":"Control Agreement","url":"https://dealroom.so/glossary/control-agreement"},{"term":"Franchise agreement","url":"https://dealroom.so/glossary/franchise-agreement"},{"term":"Franchisor","url":"https://dealroom.so/glossary/franchisor"}],"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-sba-determine-undue-control-by-a-franchisor-in-a-franchise-agreement-making-i","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."]}