What Changes in Franchise Contracts is the SBA Demanding?

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I am serving as the Chair of the Franchise Law Committee of the State Bar of California.

Recently, I have heard reports from some of our members that they are having greater difficulties in the last few months in obtaining approval for their clients to be part of the SBA Registry of "approved" franchisors for SBA Loans.

The reports are that provisions in franchise agreements that had never been questioned in the past are now resulting in comments that the language must be changed.

Are others having similar experiences?

I understand that the IFA Legal Legislative Committee formed a task force to work with the SBA and that the task force developed proposed standard addendum language related to the Franchisor setting prices. The SBA is considering that language.

Here are some further requests that I understand that have been made by the SBA:

1. To include in an SBA addendum language to the effect that the franchisor would not exercise its right of first refusal in the event of a franchisee partial assignment (i.e. less than 100%), the concern being that if the franchisor took an assignment of less than 100% the franchisor would become a partner in the franchise, and would thereby be able to exert control to an extent that might eliminate the independence of the franchisee.

2. The SBA will require the franchise contract to be amended to reflect a time frame in which the franchisor will operate the business which cannot be more than 90 days, renewable as necessary for up to one year and that franchisor will periodically discuss the status with the franchisee.

3. Some franchisors have experienced resistance with the services the provide, such as customer scheduling. The SBA is requiring these services be provided on an optional basis.

Dennis E. Wieczorek has a list of other changes demanded by the SBA. I would appreciate any comments that people would be willing to share.

There is no need for you to identify the client, but I would appreciate hearing (a) the type of comment; (b) the general industry segment in which the franchisor operates; and (c) any other information that you think is relevant.

You can contact me below. Thanks.

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About this Entry

This page contains a single entry by Brian Cole published on July 19, 2012 8:50 PM.

What You Need to Know about Franchisee Releases in Ontario was the previous entry in this blog.

Are You an Arrogant Franchisee? Is it Preventing Your Success? is the next entry in this blog.

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