For SBA lenders
Short answer
Provisions granting the franchisor undue control over the franchisee's operations, restricting the franchisee's ability to transfer ownership, or imposing unreasonable termination clauses can render a franchise ineligible.
Franchise agreements must allow the franchisee sufficient independence to operate their business, consistent with SBA's 'for-profit' and 'small business' definitions. Clauses that grant the franchisor excessive control over pricing, hiring, or marketing, or that create unreasonable termination conditions, can lead to ineligibility.
A lender reviews a franchise agreement for a $900,000 7(a) loan. If the agreement states the franchisor has the right to set all product prices, dictate employee wages, and unilaterally terminate the agreement with minimal notice without cause, the lender would deem the franchise ineligible due to undue control.
Insider move
Lenders must carefully review franchise agreements to ensure the franchisee operates as an independent business. Financing an ineligible franchise due to undue control provisions can result in a guaranty 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 2026-06-14. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-14 · SBA sources checked through 2026-06-14. 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
Terms in this answer
Pre-qualify your SBA 7(a) deal
Tell us the business, the price, and where you are — we'll point you to the lenders most likely to fund a deal like yours and flag anything that trips up approval.
Free · No documents · Usually same-day