{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/what-due-diligence-does-the-lender-perform-to-ensure-a-franchise-is-eligible-for-sba-7-a-f","api_url":"https://dealroom.so/api/public/questions/what-due-diligence-does-the-lender-perform-to-ensure-a-franchise-is-eligible-for-sba-7-a-f","question":"What due diligence does the lender perform to ensure a franchise is eligible for SBA 7(a) financing?","topic":"Franchise financing","audience":"borrower","bot_mode":"buyer","short_answer":"Lenders verify if the franchise is listed on the SBA Franchise Directory or, if not, perform extensive due diligence on the franchise agreement to ensure SBA eligibility.","rule":"If a franchise is on the SBA Franchise Directory, it indicates pre-approval for SBA eligibility, simplifying the process. If not, the lender must review the franchise agreement and all related documents (e.g., Franchise Disclosure Document) to ensure there are no provisions that violate SBA rules, such as excessive control by the franchisor over the borrower's operations or restrictive covenants that limit the borrower's ability to operate independently.","example":"A buyer applies for an SBA loan to acquire a new yogurt shop franchise. The lender first checks the SBA Franchise Directory. If the brand isn't listed, the lender reviews the franchise agreement line-by-line to confirm no terms conflict with SBA affiliation rules or borrower independence.","what_lenders_check":"Lenders are highly focused on ensuring the franchise agreement does not create 'affiliation' issues or restrict the borrower's independent operation, which could jeopardize the SBA guaranty. They meticulously check for prohibited clauses.","required_facts":["SBA Franchise Directory","Franchise agreement","Affiliation rules","Borrower independence","Due diligence"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","13 CFR Part 121 - Small Business Size Regulations"],"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"}],"related_questions":[{"question":"What are the requirements for a franchisor to be listed on the SBA Franchise Directory?","url":"https://dealroom.so/sba-7a/questions/what-are-the-requirements-for-a-franchisor-to-be-listed-on-the-sba-franchise-directory"},{"question":"What is the typical down payment (equity injection) percentage for a franchise acquisition?","url":"https://dealroom.so/sba-7a/questions/what-is-the-typical-down-payment-equity-injection-percentage-for-a-franchise-acquisition"},{"question":"Are there minimum operating history requirements for a franchise system to be eligible for SBA loans?","url":"https://dealroom.so/sba-7a/questions/are-there-minimum-operating-history-requirements-for-a-franchise-system-to-be-eligible-for"},{"question":"Does the franchisor's financial strength and stability impact my SBA 7(a) loan approval?","url":"https://dealroom.so/sba-7a/questions/does-the-franchisor-s-financial-strength-and-stability-impact-my-sba-7-a-loan-approval"},{"question":"Can I use an SBA 7(a) loan to finance a franchise acquisition not listed on the SBA Franchise Directory?","url":"https://dealroom.so/sba-7a/questions/can-i-use-an-sba-7-a-loan-to-finance-a-franchise-acquisition-not-listed-on-the-sba-franchi"},{"question":"Can an acquisition of an existing franchise location qualify for an SBA 7(a) loan?","url":"https://dealroom.so/sba-7a/questions/can-an-acquisition-of-an-existing-franchise-location-qualify-for-an-sba-7-a-loan"}],"related_terms":[{"term":"Due diligence","url":"https://dealroom.so/glossary/due-diligence"},{"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":"Operational due diligence","url":"https://dealroom.so/glossary/operational-due-diligence"},{"term":"Legal due diligence","url":"https://dealroom.so/glossary/legal-due-diligence"},{"term":"Inadequate due diligence","url":"https://dealroom.so/glossary/inadequate-due-diligence"}],"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":"2026-06-14","sba_rule_sources_checked_through":"2026-06-14"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/sba-7a/questions/what-due-diligence-does-the-lender-perform-to-ensure-a-franchise-is-eligible-for-sba-7-a-f","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."]}