{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/what-specific-types-of-clauses-in-a-franchise-agreement-would-constitute-undue-control-by-","api_url":"https://dealroom.so/api/public/questions/what-specific-types-of-clauses-in-a-franchise-agreement-would-constitute-undue-control-by-","question":"What specific types of clauses in a franchise agreement would constitute \"undue control\" by the franchisor, rendering it ineligible for 7(a) financing?","topic":"Franchise eligibility","audience":"lender","bot_mode":"lender","short_answer":"Undue control clauses typically include those that restrict the franchisee's ability to transfer ownership, manage operations, select suppliers, or control their assets without franchisor consent, beyond reasonable brand standards.","rule":"The SBA requires franchisees to have sufficient control over their business operations and assets. Clauses granting the franchisor excessive authority, such as mandatory repurchase options at less than fair market value, blanket approval rights for all financing, or restrictions on selling the business, are examples of undue control that render a franchise agreement ineligible.","example":"A franchise agreement states the franchisor has an absolute right of first refusal to purchase the business at a pre-determined, non-negotiable price significantly below market value if the franchisee wishes to sell. A lender would identify this as an undue control clause, making the franchise ineligible.","what_lenders_check":"Lenders must meticulously review franchise agreements, including all addenda, to identify and understand any clauses that could imply undue franchisor control, jeopardizing the franchisee's independence and 7(a) loan eligibility.","required_facts":["Undue control","Franchise agreement","Ineligible clauses","Operational control","Asset transfer"],"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":"Franchisor Undue Control","url":"https://dealroom.so/glossary/franchisor-undue-control"},{"term":"Undue control","url":"https://dealroom.so/glossary/undue-control"},{"term":"Franchisor Control","url":"https://dealroom.so/glossary/franchisor-control"},{"term":"Control Agreement","url":"https://dealroom.so/glossary/control-agreement"},{"term":"Franchise agreement","url":"https://dealroom.so/glossary/franchise-agreement"},{"term":"Franchisor","url":"https://dealroom.so/glossary/franchisor"}],"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-types-of-clauses-in-a-franchise-agreement-would-constitute-undue-control-by-","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."]}