July 2020
Ask The Experts
SBA 504 Q&A: Financing Franchises

Q: What does the Small Business Administration (SBA) need in relation to financing a franchise with a 504 loan?

Ask the SBA 504 Loan ExpertsA: Effective Jan. 1, 2018, the SBA launched their Franchise Directory (www.sba.gov/document/support–sba-franchise-directory). The directory lists franchisors who have submitted their agreements to the SBA for review and comment and indicates what you will need to collect in order to fund the SBA portion of the loan.

Is the franchise/brand listed on the SBA Franchise Directory?

If yes, please note the following re: the directory:

The SBA Franchise Identifier Code: This will need to be included in the credit memo submitted to the SBA at the time of application.

Brand: The name listed as “brand” on the registry should match exactly the name of the franchisor, or brand, on the franchise agreement.

Meets FTC Definition

  If yes, read on for any addendum requirements.

  If no, you may proceed with the loan as usual. These are listed to ensure Certified Development Companies are aware they have already been reviewed and nothing is needed.

Is an addendum needed?

•  If not, you may proceed, but will need to collect the fully executed franchise agreement, to provide to the SBA via a change request, prior to debenture funding.

  If yes, the registry will indicate whether the SBA addendum (form 2462) is used or if the franchisor has negotiated their own addendum (SBA negotiated addendum), which they will need to provide.

The appropriate fully executed addendum will also need to be submitted to the SBA, via a change request, along with the franchise agreement as mentioned above, prior to debenture funding.

Of note: SBA addendum, form 2462, can be used in place of a negotiated addendum as long as it is fully executed.

Notes: this section indicates other items or issues to be aware of related to the specific listing.

If no, how is the brand submitted for review?

The franchisor must submit the agreement, Franchise Disclosure Document (FDD), if applicable, all other documents the franchisor requires the franchisee to sign and their contact information to franchise@sba.gov for an affiliation and eligibility determination.

If the franchisor agrees to use form 2462, the SBA will only conduct an eligibility review, not affiliation, and this will speed up the approval process.

If the franchisor elects not to use form 2462, the SBA will work with the franchisor to resolve any affiliation issues, which could include use of an SBA negotiated addendum.

  When this option is elected, the applications will be reviewed in the order in which they were received.

After review, and finalization of any needed addendums, the SBA will list the brand on the directory along with applicable information.

Regardless of how the brand is approved, as mentioned above, the Certified Development Company (Florida First Capital) must still obtain an executed copy of the franchise agreement, and all applicable documents, along with the appropriate addendum and provide the same to the SBA, via a change request (form 327) requesting concurrence, prior to submitting the loan for debenture funding.

If you have a question for our SBA 504 loan experts, email us at info@FloridaFirst.com or call 850.681.3601 or toll-free at 800.504.LOAN.