For SBA lenders
Short answer
Issues leading to 'undue control' by a franchisor typically include clauses that restrict the franchisee's ability to transfer ownership, dictate business management decisions beyond brand standards, or impose excessive financial burdens without corresponding benefits, compromising the franchisee's independence.
SBA requires that the small business (franchisee) maintain independence and control over its operations. Franchise agreements that grant the franchisor excessive control over the franchisee's business decisions, especially regarding ownership transfer or operational autonomy beyond protecting the brand, can render the franchisee ineligible for SBA financing because it resembles an affiliation or an ineligible 'not-for-profit' business.
A lender reviews a franchise agreement where the franchisor has an absolute right of first refusal at a discounted price for any sale of the franchisee's business, and the ability to unilaterally terminate the agreement without cause. These clauses could indicate 'undue control,' making the franchise ineligible for a 7(a) loan, as they restrict the franchisee's equity and operational independence.
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.
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