Guidelines for SBA Guaranteed Loans to Franchisees to Change
TODAY, APRIL 7, 2015 IS LAST DAY FOR INPUT TO U.S. SBA
The U.S. Small Business Administration has requested comments from interested parties regarding its consideration of the factors the agency deems relevant to the determination of “affiliation” between entities with regard to its loan program. The SBA uses these guidelines to approve or deny approval of SBA guaranteed loans to franchisees. The SBA is responding to pressure from the franchise industry to expedite the approval process.
The International Franchise Association (IFA) submitted comprehensive comments for submission to the SBA. The SBA comments were a compilation of work performed by the IFA’s SBA task force, established by the IFA Legal-Legislative Committee (LLC), over the last couple of years. The IFA and SBA have had numerous meetings concerning the issues raised. I am a member of the LLC, and have submitted many comments to the IFA and the SBA representative who appeared last year before the LLC.
The SBA questions and the most recent IFA Comments and my separate comments submitted today are available online at http://www.regulations.gov; search for docket # SBA-2014-0014. You may submit comments or endorse others’ comments at that site.
What is Likely to Change
Generally, the SBA approval process has grown too slow, taking over seven weeks in many cases. I have proposed that the SBA should commit to review and respond within a defined period of time, such as 30 days. This will require the SBA to devote adequate staffing to this function.
Also, there are many areas of franchise agreements that the SBA position has been in contravention to current legal standards. For example, current anti-trust law in most states allow a franchisor to set resale prices of franchisees, but the SBA has prohibited such provisions. The comments suggest a compromise franchise agreement provision that I support.
While the SBA registry system is by law optional, many franchisors have felt that the risk of delays of franchisee loans is such that filing for SBA approval on the registry is de facto required. I have proposed that the SBA should accept an opinion from franchisor’s legal counsel, based on standards established by the SBA, as an optional alternative to review and approval by SBA staff. Franchisors would have the choice of which route to follow.
The SBA registry is managed by one private profit making company. Therefore market forces cannot apply to registration fees, because there is a monopoly. Therefore, there should be a periodic bid process for registry management, about every five years, in which the fees to be charged are a required element.