{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/what-specific-conditions-trigger-affiliation-due-to-contractual-relationships-or-franchise","api_url":"https://dealroom.so/api/public/questions/what-specific-conditions-trigger-affiliation-due-to-contractual-relationships-or-franchise","question":"What specific conditions trigger affiliation due to contractual relationships or franchise agreements?","topic":"Affiliation & Size","audience":"lender","bot_mode":"lender","short_answer":"Affiliation arises from contractual relationships or franchise agreements when one entity has the power to control the other, especially through restrictive covenants or the right to control business operations.","rule":"The SBA's 'power to control' principle applies to contractual agreements. If a contract, such as a franchise agreement, management agreement, or similar arrangement, gives one business the ability to control the other's operations, management, or governance, then affiliation is triggered. Franchises are generally affiliated with their franchisor unless listed on the SBA Franchise Directory or individually reviewed and approved.","example":"A borrower applies for a loan to open a new franchise. The franchise agreement grants the franchisor significant control over pricing, marketing, purchasing, and operational decisions. The lender determines the borrower is affiliated with the franchisor because of the extensive control provisions, unless the franchise is pre-approved by the SBA.","what_lenders_check":"Lenders must meticulously review all contractual agreements, especially franchise agreements, management contracts, and supply agreements, to identify any clauses granting control. They must assess the degree of control exercised to determine if an affiliation exists that impacts size eligibility. The SBA Franchise Directory is a key resource for franchises.","required_facts":["Contractual control","Franchise agreement","Operational control","Power to control","SBA Franchise Directory"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","13 CFR Part 121 - Small Business Size Regulations","Affiliation and Lending Criteria for SBA Business Loan Programs - Final Rule"],"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"},{"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":"How does the SBA define 'affiliation' when checking business size?","url":"https://dealroom.so/for-lenders/questions/how-does-the-sba-define-affiliation-when-checking-business-size"},{"question":"When does common management or shared facilities trigger affiliation for SBA 7(a) size determination?","url":"https://dealroom.so/for-lenders/questions/when-does-common-management-or-shared-facilities-trigger-affiliation-for-sba-7-a-size-dete"},{"question":"What factors are considered when evaluating affiliation between businesses that share common management?","url":"https://dealroom.so/for-lenders/questions/what-factors-are-considered-when-evaluating-affiliation-between-businesses-that-share-comm"},{"question":"What are the financial criteria for a business to qualify as 'small' under the alternative size standard?","url":"https://dealroom.so/for-lenders/questions/what-are-the-financial-criteria-for-a-business-to-qualify-as-small-under-the-alternative-s"},{"question":"Does an unfunded stock option agreement trigger affiliation for SBA 7(a) size standard calculations?","url":"https://dealroom.so/for-lenders/questions/does-an-unfunded-stock-option-agreement-trigger-affiliation-for-sba-7-a-size-standard-calc"},{"question":"What criteria does the SBA use to determine common management that triggers affiliation for size standard purposes?","url":"https://dealroom.so/for-lenders/questions/what-criteria-does-the-sba-use-to-determine-common-management-that-triggers-affiliation-fo"}],"related_terms":[{"term":"Industry-Specific Size Standards","url":"https://dealroom.so/glossary/industry-specific-size-standards"},{"term":"Conditions precedent to closing","url":"https://dealroom.so/glossary/conditions-precedent-to-closing"},{"term":"Conditions","url":"https://dealroom.so/glossary/conditions"},{"term":"Affiliation","url":"https://dealroom.so/glossary/affiliation"},{"term":"Management Agreements","url":"https://dealroom.so/glossary/management-agreements"},{"term":"Specific Lien","url":"https://dealroom.so/glossary/specific-lien"}],"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-specific-conditions-trigger-affiliation-due-to-contractual-relationships-or-franchise","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."]}