{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/what-if-a-franchise-agreement-contains-provisions-for-indemnification-that-concern-the-sba","api_url":"https://dealroom.so/api/public/questions/what-if-a-franchise-agreement-contains-provisions-for-indemnification-that-concern-the-sba","question":"What if a franchise agreement contains provisions for indemnification that concern the SBA?","topic":"Franchise Eligibility","audience":"lender","bot_mode":"lender","short_answer":"If a franchise agreement contains indemnification provisions that obligate the franchisee to indemnify the franchisor for SBA-related losses, the SBA may deem it problematic for eligibility or require an addendum.","rule":"The SBA is concerned about any clause in a franchise agreement that attempts to make the borrower (franchisee) responsible for losses incurred by the franchisor related to the SBA loan or guaranty. Such clauses can be seen as attempting to circumvent SBA policy or creating undue financial burden. The SBA may require an addendum to nullify or modify such clauses for eligibility.","example":"A lender reviews a franchise agreement for a new fast-food concept. It contains a clause stating the franchisee must indemnify the franchisor for any losses related to the franchisee's SBA loan. The lender flags this, informing the borrower that an SBA-approved addendum will be required to remove or modify this clause for eligibility.","what_lenders_check":"Lenders must meticulously review all franchise agreements, especially those not on the SBA Directory, for clauses that could be problematic for SBA eligibility. Indemnification clauses are a red flag as they can expose the borrower to liabilities that could impair their ability to repay the SBA loan, or attempt to shift SBA's risk. Proper review and, if necessary, an addendum, are critical.","required_facts":["Franchise agreement","Indemnification clauses","SBA concerns","Eligibility impact","FDD Addendum"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","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":"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 specific requirements apply to a franchise system for SBA 7(a) loan eligibility?","url":"https://dealroom.so/for-lenders/questions/what-specific-requirements-apply-to-a-franchise-system-for-sba-7-a-loan-eligibility"},{"question":"What is the lender's process for submitting an unlisted franchise agreement for SBA eligibility review?","url":"https://dealroom.so/for-lenders/questions/what-is-the-lender-s-process-for-submitting-an-unlisted-franchise-agreement-for-sba-eligib"},{"question":"How does the SBA define 'undue control' by a franchisor that could render a franchise ineligible for 7(a) financing?","url":"https://dealroom.so/for-lenders/questions/how-does-the-sba-define-undue-control-by-a-franchisor-that-could-render-a-franchise-inelig"},{"question":"What issues in a franchise agreement typically lead to a determination of 'undue control' by the franchisor?","url":"https://dealroom.so/for-lenders/questions/what-issues-in-a-franchise-agreement-typically-lead-to-a-determination-of-undue-control-by"},{"question":"What process must a lender follow if a franchise applicant's agreement is not listed on the SBA Franchise Directory?","url":"https://dealroom.so/for-lenders/questions/what-process-must-a-lender-follow-if-a-franchise-applicant-s-agreement-is-not-listed-on-th"},{"question":"What specific provisions in a franchise agreement, if present, would render a franchise ineligible for 7(a) financing?","url":"https://dealroom.so/for-lenders/questions/what-specific-provisions-in-a-franchise-agreement-if-present-would-render-a-franchise-inel"}],"related_terms":[{"term":"Indemnification agreement","url":"https://dealroom.so/glossary/indemnification-agreement"},{"term":"Franchise agreement","url":"https://dealroom.so/glossary/franchise-agreement"},{"term":"Indemnification from the Seller","url":"https://dealroom.so/glossary/indemnification-from-the-seller"},{"term":"Indemnification","url":"https://dealroom.so/glossary/indemnification"},{"term":"Franchise eligibility requirements","url":"https://dealroom.so/glossary/franchise-eligibility-requirements"},{"term":"Franchise Eligibility Review","url":"https://dealroom.so/glossary/franchise-eligibility-review"}],"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/what-if-a-franchise-agreement-contains-provisions-for-indemnification-that-concern-the-sba","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."]}