For SBA lenders
Short answer
If a franchise agreement contains indemnification provisions that obligate the franchisee to indemnify the franchisor for SBA-related losses, the SBA may deem it problematic for eligibility or require an addendum.
The SBA is concerned about any clause in a franchise agreement that attempts to make the borrower (franchisee) responsible for losses incurred by the franchisor related to the SBA loan or guaranty. Such clauses can be seen as attempting to circumvent SBA policy or creating undue financial burden. The SBA may require an addendum to nullify or modify such clauses for eligibility.
A lender reviews a franchise agreement for a new fast-food concept. It contains a clause stating the franchisee must indemnify the franchisor for any losses related to the franchisee's SBA loan. The lender flags this, informing the borrower that an SBA-approved addendum will be required to remove or modify this clause for eligibility.
Insider move
Lenders must meticulously review all franchise agreements, especially those not on the SBA Directory, for clauses that could be problematic for SBA eligibility. Indemnification clauses are a red flag as they can expose the borrower to liabilities that could impair their ability to repay the SBA loan, or attempt to shift SBA's risk. Proper review and, if necessary, an addendum, are critical.
7(a) Loan Program — Terms, Conditions, and Eligibility
U.S. Small Business Administration · Official SBA source
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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