For SBA lenders
Short answer
The SBA will review an unlisted franchise agreement for specific clauses that grant the franchisor 'undue control' over the franchisee, which would render it ineligible for SBA financing.
For a franchise to be eligible, the franchisor must not exert undue control over the franchisee's operations that would effectively make the franchisee an affiliate or an agent rather than an independent business. The SBA reviews the agreement for provisions related to transferability, termination, operational control, and financial independence to ensure the franchisee maintains sufficient entrepreneurial discretion.
An unlisted franchise agreement for a tutoring service contains clauses that give the franchisor absolute control over pricing, employee hiring/firing, and marketing, making the franchisee entirely dependent. The SBA would likely deem this undue control, making the franchise ineligible.
Insider move
Lenders must carefully vet unlisted franchise agreements for undue control. Submitting an ineligible agreement can lead to a denial of the loan authorization or, if discovered post-closing, a guaranty repair or denial.
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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