{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/how-does-the-sba-evaluate-a-franchise-agreement-not-on-the-directory-for-acceptable-franch","api_url":"https://dealroom.so/api/public/questions/how-does-the-sba-evaluate-a-franchise-agreement-not-on-the-directory-for-acceptable-franch","question":"How does the SBA evaluate a franchise agreement not on the directory for acceptable franchisor control provisions?","topic":"Franchise eligibility","audience":"lender","bot_mode":"lender","short_answer":"The SBA will review an unlisted franchise agreement for specific clauses that grant the franchisor 'undue control' over the franchisee, which would render it ineligible for SBA financing.","rule":"For a franchise to be eligible, the franchisor must not exert undue control over the franchisee's operations that would effectively make the franchisee an affiliate or an agent rather than an independent business. The SBA reviews the agreement for provisions related to transferability, termination, operational control, and financial independence to ensure the franchisee maintains sufficient entrepreneurial discretion.","example":"An unlisted franchise agreement for a tutoring service contains clauses that give the franchisor absolute control over pricing, employee hiring/firing, and marketing, making the franchisee entirely dependent. The SBA would likely deem this undue control, making the franchise ineligible.","what_lenders_check":"Lenders must carefully vet unlisted franchise agreements for undue control. Submitting an ineligible agreement can lead to a denial of the loan authorization or, if discovered post-closing, a guaranty repair or denial.","required_facts":["Franchisor control clauses","Operational independence","Termination rights","Transferability","Entrepreneurial discretion"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","13 CFR Part 120 - Business Loans"],"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"}],"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":"SBA Franchise Directory","url":"https://dealroom.so/glossary/sba-franchise-directory"},{"term":"Franchise Directory","url":"https://dealroom.so/glossary/franchise-directory"},{"term":"Franchisor Control","url":"https://dealroom.so/glossary/franchisor-control"},{"term":"SBA's Franchise Directory","url":"https://dealroom.so/glossary/sba-s-franchise-directory"},{"term":"Franchisor Undue Control","url":"https://dealroom.so/glossary/franchisor-undue-control"},{"term":"Claim on the SBA Guarantee","url":"https://dealroom.so/glossary/claim-on-the-sba-guarantee"}],"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-evaluate-a-franchise-agreement-not-on-the-directory-for-acceptable-franch","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."]}