The Benefits of Using the Franchise Registry

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If you haven't heard about The Franchise Registry it's important that you do, especially if you're thinking about applying for an SBA-approved loan to acquire a franchise opportunity. Approximately 1,000 franchise brands (which is maybe a third of the franchise companies in North America) appear on the registry. For brands that do not appear, you probably will not get your SBA loan approved.

Even if you don't plan on securing an SBA loan to buy a franchise, The Franchise Registry is a good way to check out a franchise opportunity.

Checking Out The Franchisor's Operations

Prior to guaranteeing a loan for a franchisee, the SBA wants to be familiar with the franchisor's operating procedures. With nearly 3,000 franchisors operating in the USA, and changes occurring randomly to their operating procedures, it's a chore for the SBA to review all of those companies.

Some years ago, the SBA contracted with FRANdata, a company that provides objective information about franchising, to maintain the registry, conduct the ongoing reviews, and negotiate, as needed, with franchisors to help them comply with SBA's regulations. To be considered for the registry, franchisors pay $2,500. Some companies may balk at that, or simply not have the funds. However, it's a small price to pay to gain access to prospective buyers who need SBA funding.

Benefits Of The Franchise Registry

According to Darrell Johnson, president of FRANdata, the registry provides several benefits:

  • It "comforts" lenders. The registry provides a risk-reducing factor to lenders and saves them time. If a franchisor appears on the list, the lender knows that the franchisor's documents have met the SBA's standards.
  • It's a marketing tool for franchisors. The franchisors that appear on the registry can tell their prospective franchisees that their documents comply with SBA's lending criteria.
  • It "comforts" prospective franchisees. When a franchisor appears on the list, it tells the prospective franchisee that the franchisor's franchise agreement isn't onerous. The SBA has reviewed the document and it's acceptable.

Is Your Franchisor Registered?

Take a moment to review the registry to find out which franchisors are listed. If you're considering a franchise that's not listed on the registry, and you know that you'll need an SBA loan to become a franchisee, your first step should be to tell the franchisor to get on the list. If you're not seeking an SBA loan, but your franchise opportunity of choice is not on the list, ask why!

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Smart way to rule in or rule out franchise offerings.

Thanks for this reminder John. The SBA registry is a benefit for many franchisors and franchisees. However, a couple of caveats about the SBA registry:

1. It is voluntary, and many franchisors choose not to incur the substantial initial and annual cost because either their franchisees do not often obtain SBA loans, or because the franchisees have not had issues with local SBA offices. The list of franchisors on the registry is published by the SBA, and only about a quarter of US are listed. Many franchisors were once listed but have not renewed.

2. Some franchisors do not qualify (which is not necessarily a reflection on the franchise), because they exercise too much control for the SBA's strict independence standards.

3. Most franchisors will need an addendum to their franchise agreement for their franchisees to obtain SBA loans, whether the franchisor is listed on the registry or not. Your franchise lawyer should evaluate and edit any such addendum proposed by the SBA to make sure it fits with your the agreement. Also, if there may be future franchisees obtaining SBA loans, your franchise lawyer should attach it to the franchise agreement form that is attached to the franchise disclosure document.

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About this Entry

This page contains a single entry by Dr. John Hayes published on September 1, 2014 7:31 PM.

Can Talking Kill Communication? was the previous entry in this blog.

Is the Customer Always Right? is the next entry in this blog.

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