For SBA lenders
Short answer
The 'franchise rule' states that a franchisee is generally not affiliated with its franchisor based solely on the franchise agreement, but other affiliation tests may still apply.
SBA rules specifically exempt franchisor-franchisee relationships from affiliation based on the franchise agreement itself, provided the agreement doesn't give the franchisor unusual control over the franchisee's operations. However, if the franchisor also has an ownership stake in the franchisee or provides significant financial assistance that implies control, other affiliation rules might apply.
A borrower applies for a 7(a) loan to open a new fast-food franchise. The lender reviews the franchise agreement and confirms it's standard and listed on the SBA Franchise Directory. The borrower will not be deemed affiliated with the large franchisor solely due to the franchise agreement.
Insider move
Lenders must review the specific franchise agreement to ensure it meets SBA standards and does not grant the franchisor undue control. Any deviations or unusual clauses require careful analysis to avoid potential affiliation issues.
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
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
More on affiliation & size
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