The U.S. Small Business Administration (SBA) is set to reinstate its Franchise Directory on June 1, 2025, marking a significant development for franchisors, franchisees, and lenders alike. Originally introduced in 2018, the directory served as a centralized resource for lenders to verify a franchise brand’s eligibility for SBA-backed financing, streamlining the loan approval process. However, the program was discontinued in 2023, leading to increased complexities in franchise lending. The upcoming reinstatement aims to restore efficiency and clarity to the process.

A Brief History: The Rise, Fall, and Return of the Franchise Directory

The SBA Franchise Directory was established to simplify the SBA loan approval process for franchisees. By listing eligible franchise brands, it eliminated the need for lenders to individually assess each franchise agreement for compliance, thereby expediting loan approvals. In 2023, the SBA discontinued the directory, citing administrative challenges. This decision led to increased scrutiny of franchise agreements by lenders, causing delays and uncertainty in the loan process, especially for franchise businesses.

Michael Layman, the International Franchise Association’s chief advocacy officer, said the elimination of the directory “disrupted the development of franchised businesses, causing lenders to pull back from franchise lending, denying would-be entrepreneurs access to critical sources of start-up capital.”

Samuel Phelps, director of development at Tenet Financial Group, a leading franchise and small business funding firm, said, “Bringing the directory back is a great step to opening up SBA lending to all banks, especially for community banks that didn’t have the confidence in handling SBA lending to franchises in the past without the directory in place.”

What’s New in the 2025 Reinstatement?

The reinstated Franchise Directory comes with several key updates designed to enhance its effectiveness:

1. Franchisor Certification Requirement: Franchisors must now complete a certification affirming compliance with SBA eligibility criteria to be listed in the directory. This replaces the previous requirement of submitting an SBA Addendum (Form 2462) or a negotiated addendum. Franchisors already listed as of May 2023 have until July 31, 2025, to submit this certification to maintain their listing. During this period, the SBA lender must use the addendum indicated on the directory as well as comply with any notes included with the brand listing, and both the franchisor and franchisee must execute the addendum prior to loan disbursement. If a franchisor/distributor has not executed the Franchisor Certification by July 31, 2025, the brand will be removed from the directory.
2. Simplified Affiliation Rules: The SBA has eliminated the “control” test for affiliation in 7(a) and 504 loans. Affiliation is now determined solely by ownership, simplifying the review process for franchisees.
3. Mandatory Verification by Lenders: Lenders are required to verify that a franchise brand is listed in the SBA Franchise Directory before proceeding with loan applications. This applies to both delegated and non-delegated loan processing. If a brand is not listed, the loan cannot be approved under delegated authority.
4. No Cost for Listing: There is no fee for franchisors to be listed in the directory. This ensures that access to SBA-backed financing remains open to a broad range of franchise brands.

Implications for Franchisors and Franchisees

The reinstatement of the Franchise Directory is expected to have several positive impacts:

• Streamlined Loan Approvals: With a centralized directory, lenders can quickly verify franchise eligibility, reducing the time and paperwork involved in loan processing.
• Increased Access to Capital: Franchisees of listed brands will find it easier to secure SBA-backed loans, facilitating business growth and expansion.
• Enhanced Clarity and Predictability: The updated directory provides clear guidelines for both franchisors and lenders, minimizing confusion and potential delays.

Action Steps for Franchisors

To ensure continued eligibility for SBA-backed financing, franchisors should:
1. Submit the Required Certification: Complete and submit the SBA Franchisor Certification along with the current Franchise Disclosure Document (FDD) by July 31, 2025.
2. Review Franchise Agreements: Ensure that all franchise agreements comply with SBA eligibility criteria to avoid potential issues during lender reviews.
3. Stay Informed: Keep abreast of any further updates or changes to SBA policies that may affect franchise eligibility and lending processes.

How Should Entrepreneurs Proceed in Light of the Directory’s Return

Entrepreneurs are always going to need business capital and lenders have money to lend, so what can someone do to enhance their access to SBA funding?

1. Prepare and present a strong business plan as part of the SBA loan process. A well-developed business plan should include goals, strategies, and financial projections, and demonstrate that the would-be business owner has a clear understanding of the local market, competition, market share opportunity, and profitability potential. Free business plan templates are available from sources like the SBA, Canva, and Hubspot.
2. Compare lenders. All loans are not equal, and it’s not just about the rate and fees. Ask about loan terms and repayment options. Always check the lender’s reputation and customer service through online reviews, and get multiple quotes to help negotiate the terms and rates offered.
3. Share the franchisor’s UVP (unique value proposition). Franchising is a model designed to deliver the same model and results, regardless of market. Sharing details of a brand’s history, success rate, and support demonstrates how investing in the selected franchise sets a stage for success before the doors even open.
4. Rely on a trusted lending partner. Lenders who specialize in franchise funding understand the intricacies of the industry and can provide guidance on the options within the SBA (such as a 7(a) Loan or SBA Express loan) for funding and, most importantly, fund franchises day in and day out, making them well-versed best practices for dealing with the SBA.

The return of the SBA Franchise Directory represents a significant step toward simplifying and expediting the loan approval process for franchise businesses. By providing a clear and centralized resource for verifying franchise eligibility, the SBA aims to enhance access to capital for franchisees and support the growth of franchised businesses nationwide.