SBA Tweaks Lending Rule, Relieving Some Franchisors
In other SBA news, Linda McMahon was confirmed Feb. 14 as the 25th administrator of the U.S. Small Business Administration.
The Small Business Administration temporarily tweaked its new procedures governing lending to franchisees, to the relief of many franchisors and bankers who maintained the new rules would chill franchise lending.
Franchisors can now use contracts already approved by the SBA in 2015 or 2016 to certify their franchisees are eligible for SBA loans. This was a long-standing practice the new rules had scrapped in favor of one, standard SBA-issued contract that some franchisors said they would not sign. The new rules went into effect January 1, and the tweak was announced earlier this week.
“The SBA is demonstrating it listened to the small franchise businesses it serves and is alleviating some of the unintended negative consequences of the new procedure,” said Robert Cresanti, CEO of the International Franchise Association, in a statement.
The IFA held roundtables at its annual convention, Jan. 29-Feb. 1, featuring SBA staff, where attendees pushed back against the rules, said Nick Jellum, president of Anastasi Jellum, a specialty law firm representing SBA lenders around the country.
“I know there were some large brands that made some—for lack of a better term—global statements that they would not sign” the new standard addendum from the SBA.
“It’s a good move, but there’s still some gaps,” he added, meaning many franchises’ contracts are not covered by the tweaked rules. “Quite frankly I think there’s going to be continued discussion. They’re probably still digesting the response from the IFA conference.”
Meanwhile, lenders who want to make government-backed loans will still have to certify themselves that a borrower is eligible for an SBA loan—and forego the government guarantee to reimburse them if the loan goes bad and the SBA determines the borrower wasn’t eligible after all. “I’m still hearing lenders have a lot of heartburn,” Jellum said.
The changes are temporary, lasting until February 1, 2018, and will be subject to review like all SBA practices by its new administrator, Linda McMahon, who was confirmed by the Senate February 14.
“Small businesses are the engine of our national economy,” McMahon said upon her confirmation, according to an SBA news release. “I will work to revitalize a spirit of entrepreneurship in America.
“As an entrepreneur myself, I have shared the experiences of our nation’s small business owners. My husband and I built our business from scratch,” she said, referring to Vince McMahon. She is co-founder and former CEO of WWE, the publicly traded global wrestling enterprise with more than 800 employees.