Until May 11, 2023, the US Small Business Administration (SBA) facilitated franchise financing by authenticating brand eligibility through its directory. However, the SBA directory has been discontinued, and lenders now bear the burden of determining eligibility. This shift has led to banks reassessing their underwriting processes, causing delays and increased denials due to uncertainty. Lenders are looking to brands to provide self-authentication.
FRANdata has been closely monitoring how things are developing among lenders, franchisors, and franchisees. Both franchisors and lenders alike have had great concern and confusion, and because of this, we created the Certificate of Franchisor Eligibility. The purpose of this Certificate is to alleviate these issues and confirm eligibility. More than two hundred brands have their certificate signed and available to the 9000+ franchise lenders on the Franchise Registry, and more are providing their signed certificates every day.
Just recently, in a peer-to-peer lender session, there was unanimous consensus by lenders grumbling about the uncertainty of how to handle franchise eligibility now that SBA is no longer vetting franchises. A lender stood up and said FRANdata has the solution with a Certification of Franchise Documents. Another lender whose bank requires the certification, validated that it’s a required CYA document for their bank. Paul Santomauro, Director of Lending and Credit Risk products, explained the certification and how it took months to create and covers 26 years’ worth of eligibility decisions. There was a sigh of relief and a rush of lenders to FRANdata to learn more. More and more lenders are coming to the Franchise Registry to access the certification as part of their underwriting process.
Why is having the Franchisor Eligibility Certificate important?
Currently, lenders are immersed in the challenges of navigating franchise eligibility, mainly due to the significant overhaul of the SOP. This substantial shift has demanded their full attention; we are anticipating a shift in focus towards franchises in the near future. In light of this, we’ve taken proactive steps to address their fear of uncertainty.
With the support of some of the industry’s largest franchise lenders, FRANdata created a concise yet comprehensive document for Franchise Registry members. This document will then be made available to lenders on their brand’s franchise registry page. Participation in this certification program, as part of a Franchise Registry Membership, translates into a shorter timeline and lower costs for your franchisees. It eliminates the necessity of involving your legal team in every instance, resulting in a more streamlined process that requires no additional resources.
What is the Certificate of Franchisor Eligibility?
This certificate serves as validation that brands adhere to established rules. Although affiliation rules have been eliminated, eligibility criteria remain in effect. It confirms continued compliance with SBA eligibility rules for brands not previously listed in the SBA franchise directory and those that were.
Should you have any questions or need further clarification on any of these points, please do not hesitate to reply to this email or email us at franchiseregistry@frandata.com. You will hear from a capital access advisor who is eager to support you through this process.