For SBA lenders
Short answer
The SBA reviews franchise agreements for provisions that dictate excessive operational control, such as mandating specific suppliers, setting pricing, or restricting the franchisee's ability to sell or manage the business independently.
For a franchise to be eligible, the franchisee must largely retain control over its daily operations and profitability. Provisions that allow the franchisor to exert undue influence or control, effectively making the franchisee a manager rather than an independent business owner, can render the franchise ineligible.
A lender reviews a franchise agreement for a new fast-food concept. It finds a clause requiring the franchisee to purchase all ingredients exclusively from the franchisor at non-negotiable prices, significantly limiting their profit margins and operational independence. This could be deemed undue control.
Insider move
Lenders must carefully analyze the franchise agreement to ensure it aligns with SBA's definition of an eligible small business. Identifying and addressing potential "undue control" clauses early is critical to avoid eligibility issues.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
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 franchise eligibility
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