{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/what-specific-due-diligence-must-a-lender-perform-if-a-franchise-system-is-not-listed-on-t","api_url":"https://dealroom.so/api/public/questions/what-specific-due-diligence-must-a-lender-perform-if-a-franchise-system-is-not-listed-on-t","question":"What specific due diligence must a lender perform if a franchise system is not listed on the SBA Franchise Directory?","topic":"Franchise Eligibility","audience":"lender","bot_mode":"lender","short_answer":"If a franchise is not on the directory, the lender must review the franchise agreement and all related documents (e.g., addenda, disclosure documents) to ensure SBA compliance before submission, often with an SBA Addendum.","rule":"For a franchise system to be eligible for SBA financing, its agreements must comply with SBA requirements, particularly regarding the franchisee's control over the business. If not on the directory, the lender conducts an in-depth review of the franchise agreement to ensure no clauses restrict the franchisee's control or mandate specific vendors. An SBA Addendum often accompanies non-directory franchises.","example":"A borrower applies for a 7(a) loan to acquire a new 'Green Smoothie Bar' franchise. The lender checks the SBA Franchise Directory and finds it's not listed. The lender then requests the full franchise agreement, FDD, and any addenda, reviewing them for problematic clauses before submitting the loan application with an SBA Addendum.","what_lenders_check":"The primary concern is ensuring the franchise agreement grants the franchisee sufficient control over their business operations to meet SBA eligibility. Non-compliant agreements can lead to an ineligible loan and subsequent guaranty denial.","required_facts":["Not on directory","Franchise agreement review","SBA compliance","Franchisee control","SBA Addendum"],"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 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":"Due diligence","url":"https://dealroom.so/glossary/due-diligence"},{"term":"Franchise system","url":"https://dealroom.so/glossary/franchise-system"},{"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"},{"term":"Heightened due diligence","url":"https://dealroom.so/glossary/heightened-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":"2026-06-13","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-due-diligence-must-a-lender-perform-if-a-franchise-system-is-not-listed-on-t","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."]}