In recent weeks, two clients have come to me about renewing their registration with the SBA. As a condition for being on the SBA registry, the SBA requires franchisors to use an addendum to their franchise agreements. The addendum, at first glance, is intimating. The addendum provides that the franchisor may not use their business judgment to withhold consent to franchisee to franchisee transfers.
If the SBA is lending money to franchisees to buy a franchise, the SBA wants to make certain that the franchisor cannot subjectively prevent the franchisee from selling the franchised business and paying back the SBA loan, if the franchisee wants out of the franchised business or if the franchised business does not work out for the franchisee.
The SBA registry is a valuable sales tool. Choosing not to be part of the SBA registry or choosing to accept the addendum as written by the SBA are the not only options. There is another option: negotiate with the SBA to get an addendum that meets the SBA requirements and sets objective criteria for franchisee transfers.