SBA 7(a) Q&A
Short answer
Franchise agreement clauses that give the franchisor excessive control over the franchisee's operations, business transfer, or loan collateral can be unacceptable to the SBA and prevent financing.
The SBA requires that franchisees have sufficient independence and control over their operations to qualify for a loan. Clauses that are problematic include those that allow the franchisor to dictate operational decisions to an extent that limits the franchisee's managerial discretion, restrict the franchisee's ability to sell or transfer the business without unreasonable franchisor consent, or allow the franchisor to take a prior lien on the collateral that would subordinate the SBA lender's position.
A franchise agreement states that the franchisor has the right of first refusal and can acquire the business at a substantially discounted rate upon a change of control. This clause can be unacceptable to the SBA, as it can devalue the collateral and restrict the lender's ability to recover in case of default.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
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 2026-06-14. 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.
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