[Federal Register Volume 79, Number 235 (Monday, December 8, 2014)]
[Notices]
[Pages 72748-72753]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-28698]


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SMALL BUSINESS ADMINISTRATION

[Docket Number: SBA-2014-0014]


Franchise Agreement Reviews, Affiliation and Eligibility for 
Financial Assistance

AGENCY: Small Business Administration.

ACTION: Notice; request for comment.

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SUMMARY: The U.S. Small Business Administration (SBA) is re-examining 
the factors the agency considers relevant to the determination of 
``affiliation'' between entities involved in a franchise or other 
similar business relationship (such as license, dealer, and jobber 
relationships), as well as the current processes for making such 
determinations in connection with SBA's business loan programs. SBA 
also intends to evaluate issues related to the use of SBA's Franchise 
Findings List and to the use of external resources (such as the 
Franchise Registry) that are available to assist with the determination 
of affiliation based on a franchise or similar business relationship. 
Such issues include the responsibility for choosing, approving and/or 
maintaining these resources and the process by which affiliation 
determinations are made available to the public. SBA is issuing this 
notice to solicit feedback from the public on these issues and related 
matters.

DATES: Comments must be submitted on or before February 6, 2015.

ADDRESSES: You may submit comments, identified by Docket Number: SBA-
2014-0014, by any of the following methods: (1) Federal Rulemaking 
Portal: http://www.regulations.gov. Follow the instructions for 
submitting comments; or (2) Mail/Hand Delivery/Courier: U.S. Small 
Business Administration, Attn: Mary Frias, 409 Third Street SW., 8th 
Floor, Washington, DC 20416. SBA will post all comments to this notice 
on www.regulations.gov. If you wish to submit confidential business 
information (CBI) as defined in the User Notice at www.regulations.gov, 
you must submit such information to the U.S. Small Business 
Administration,

[[Page 72749]]

Attn: Mary Frias, 409 Third Street SW., 8th Floor, Washington, DC 
20416, or send an email to <a href="/cdn-cgi/l/email-protection#f09d918289de9682999183b0839291de979f86"><span class="__cf_email__" data-cfemail="8fe2eefdf6a1e9fde6eefccffcedeea1e8e0f9">[email protected]</span></a>. Highlight the 
information that you consider to be CBI and explain why you believe SBA 
should hold this information as confidential. SBA will review your 
information and determine whether it will make the information public.

FOR FURTHER INFORMATION CONTACT: Meghan Milloy, U.S. Small Business 
Administration, 409 3rd Street SW., 8th Floor, Washington, DC 20416, 
telephone number (202) 619-1654 or <a href="/cdn-cgi/l/email-protection#076a62606f6669296a6e6b6b687e4774656629606871"><span class="__cf_email__" data-cfemail="a7cac2c0cfc6c989cacecbcbc8dee7d4c5c689c0c8d1">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Background

    In general, SBA's programs, including its business loan programs, 
are available only to independent small businesses as defined by the 
Small Business Act and Part 121 of Title 13 of the Code of Federal 
Regulations (CFR). One key step in determining whether an applicant for 
a business loan is independent and small is to determine whether the 
applicant is affiliated with any other parties. SBA's regulations at 13 
CFR 121.103 set forth the general principles on affiliation, including 
affiliation resulting from a franchise agreement. Currently, when a 
small business loan applicant has or will have a franchise, license, 
dealer, jobber or similar relationship and such relationship (or 
product, service or trademark covered by such relationship) is critical 
to the applicant's business operation, affiliation is, in part, 
determined by reviewing the agreement and any related documents 
governing the relationship (or product, service or trademark) and 
identifying any areas of control that could cause the applicant to not 
be considered independent.
    Restraints imposed on a franchisee or licensee related to 
standardized quality, advertising, accounting format and other similar 
provisions generally are not considered in determining whether 
affiliation exists if the applicant has the right to profit from its 
efforts and bears the risk of loss commensurate with ownership. 
However, common ownership, common management or excessive restrictions 
upon the sale of the franchise interest may be means by which 
affiliation is determined to arise. 13 CFR 121.103(i). SBA has issued 
procedures for review of such agreements in connection with its 
business loan programs in SBA's Standard Operating Procedure (SOP) 50 
10 5(G), Subpart B, Chapter 2, Paragraph III.B.9 and Subpart C, Chapter 
2, Paragraph III.B. 5 (which may be revised periodically). If the 
franchise review leads to a determination that the parties are 
affiliated, then the size (e.g., revenues, employees, net worth or net 
income) of the applicant and the franchisor/licensor/etc. will be 
combined to determine whether the applicant is small for purposes of 
SBA's business loan programs.
    Under SBA's current processes (discussed more fully in section V 
below), this review is conducted by SBA for certain loan applications 
and by participating lenders or certified development companies (CDCs) 
for other loan applications. SBA conducts the review for applications 
submitted under ``non-delegated'' processing by lenders participating 
in SBA's 7(a) business loan program (7(a) lenders) and by CDCs in SBA's 
development company program (also known as the 504 loan program). For 
7(a) loan applications processed under a 7(a) lender's delegated 
authority, the 7(a) lender is responsible for conducting the review. 
However, SBA also provides these lenders the option of submitting the 
relevant documents to SBA for review and a determination as to whether 
the parties to the agreement are affiliated.
    To assist in the review of franchise and other similar 
relationships for the SBA business loan programs, SBA makes available a 
listing that identifies franchise and other similar agreements that 
have been approved by SBA regarding affiliation and control issues 
only, and therefore do not require additional review of the franchise 
agreement for those issues (i.e., these agreements do not demonstrate a 
level of control, referred to in this notice as ``excessive control'' 
such that the parties are considered to be affiliated). SBA posts the 
listing of agreements approved for those issues on SBA's Web site at 
www.sba.gov/for-lenders. This information is also currently available 
to the public at no cost at www.franchiseregistry.com (the Registry). A 
franchise system need not be on SBA's Web site or the Registry in order 
to be considered acceptable for affiliation purposes, but franchise 
agreements on SBA's Web site or the Registry have already undergone a 
review and been found acceptable on those issues only. The listing of 
an agreement does not mean that the loan applicant meets all SBA size, 
eligibility, underwriting and other loan program requirements. Also, 
further review may be necessary if there is an amendment to the 
agreement or there is a formal size protest.
    SBA also has developed the Franchise Findings List (the List), 
available on SBA's Web site at http://www.sba.gov/content/franchise-findings, which contains a list of franchise eligibility issues that 
SBA has identified over the years and contains the names of those 
franchises and other systems that have requirements in their franchise 
or other agreement that could cause a franchised business to be 
affiliated. The List is made available for use by 7(a) lenders and 
CDCs, as well as by SBA staff, in evaluating the size eligibility of a 
business that would operate under a franchise or similar agreement. The 
List is only a guide and is not a substitute for a full review of the 
agreement and related documents.
    Additional information concerning these resources is described more 
fully below in Section V.

II. Definition of Affiliation for Franchise and Other Similar 
Relationships

    By its nature, the relationship between a franchisor and franchisee 
necessarily provides for some level of control of the franchisee by the 
franchisor.\1\ It is typical, for example, for a franchisor to 
establish standards related to quality of the product and to dictate 
the type of advertising that may be used. SBA rules recognize that 
without these standards, the brand itself could be adversely affected 
and, therefore, SBA does not consider such features by themselves to 
represent a level of control by the franchisor that would result in 
affiliation between the parties. Depending on other areas of control 
afforded the franchisor over the franchisee, however, the two may be 
deemed to be affiliates. Some examples of such control, referred to in 
this notice as ``excessive control'' and discussed in greater detail 
below, could include restrictions on the applicant's right to transfer 
its ownership interest or to sell the real property it owns.
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    \1\ While relationships established under license, jobber, 
dealer and similar agreements are not generally described as 
``franchise'' relationships, such agreements in some cases provide 
for the same type of control issues that are found in franchise 
agreements and are treated as franchise relationships for purposes 
of affiliation determinations. For ease of discussion, all license, 
jobber, dealer and similar relationships will be referred to in this 
notice as ``franchise relationships'' and their agreements as 
``franchise agreements,'' and the parties to such relationships will 
be referred to as ``franchisor'' and ``franchisee.''
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    If a franchisee applying for an SBA business loan is determined to 
be affiliated with a franchisor's operation, then the combined receipts 
or employees of the franchisor and its franchisees (as well as any 
other affiliated entities) are used to determine whether the franchisee 
applicant is

[[Page 72750]]

``small'' and, therefore, eligible for SBA financing (assuming all 
other eligibility requirements are met). SBA defines affiliation in 
general in 13 CFR 121.103(a), which reads in part as follows: 
``Concerns and entities are affiliates of each other when one controls 
or has the power to control the other, or a third party or parties 
control or have the power to control both. It does not matter whether 
control is exercised, so long as the power to control exists.'' The 
regulations further state in 13 CFR 121.103(i) that affiliation may 
arise ``through other means such as common ownership, common 
management, or excessive restrictions upon the sale of the franchise 
interest.'' The same regulation also states ``The restraints imposed on 
a franchisee or licensee by its franchise or license agreement relating 
to standardized quality, advertising, accounting format and other 
similar provisions, generally will not be considered in determining 
whether the franchisor or licensor is affiliated with the franchisee or 
licensee provided the franchisee or licensee has the right to profit 
from its efforts and bears the risk of loss commensurate with 
ownership.''
    SBA would like comments on whether the regulation in 121.103(i) 
should be amended, including the reasons why any such changes should be 
made. SBA has set forth specific issues on which it is seeking comment 
in Section VI, but welcomes comments on all issues arising from this 
notice. Please provide specific suggestions as to any recommended 
changes.

III. Examples of Common Affiliation Issues Found in Franchise 
Agreements

    Over the years SBA has identified a number of common provisions in 
franchise agreements that the Agency has determined to be evidence of 
excessive control (i.e., a degree of control that results in 
affiliation) by the franchisor. These determinations have been arrived 
at in some cases through an adjudicatory process and in other cases 
through a review of franchise agreements by the Agency. Therefore, in 
most cases, there is no written decision. SBA's SOP 50 10 includes 
representative provisions SBA has determined evidence excessive 
control. As discussed in Section VI, SBA is interested in the public's 
feedback on whether the inclusion of any of these provisions in a 
franchise agreement is in fact evidence of excessive control and 
therefore affiliation between the franchisor and franchisee. SBA also 
encourages the public to provide detailed information on other factors 
that may be more indicative of affiliation between the franchisor and 
franchisee and whether those factors should be used in addition to or 
in place of those currently identified.

A. Restrictions on the Ability of the Franchisee To Transfer the 
Business or an Interest in the Business

    SBA has long considered the business owner's ability to transfer 
ownership of the business as a fundamental feature of an independent 
business. In the context of a franchise relationship, however, SBA has 
also recognized that the franchisor may want to approve the 
franchisee's proposed transferee in order to protect the brand. When a 
franchise agreement requires the consent of the franchisor in order for 
the franchisee owner to assign or transfer his or her ownership 
interest in the business, SBA has determined that the parties are 
considered affiliated unless the franchise agreement contains language 
stating the franchisor's consent will not be ``unreasonably withheld or 
delayed.'' This is intended to ensure that the franchisee has the 
ability to sell the business as long as the new owner meets reasonable 
requirements established by the franchisor. Franchise agreements that 
do not contain this language and permit the franchisor to restrict the 
transferability of the franchise without limitation are deemed to 
provide excessive control over the franchisee and, consequently, result 
in a determination of affiliation between the franchisor and 
franchisee.
    Similarly, franchise agreements that require the franchisee owner 
to remain liable for the actions of the transferee (continuing 
liability) after the transfer have also been determined by SBA to 
represent excessive control. Once a franchisor provides its consent to 
the transfer and accepts the transferee, a truly independent small 
business franchise owner should not be liable for the actions of the 
new owner. Non-compete provisions and other provisions that may cause a 
franchisee owner to be liable for his or her own actions post-transfer 
have been considered acceptable by SBA (i.e., not excessive control).

B. Deposit of Receipts Into an Account Controlled by the Franchisor

    SBA has taken the position that the ability of a franchisee to 
control the receipts and other funds of the business is a basic 
indicator of the independence of the business. Thus, a franchisee must 
have the ability to control its own funds, including the payment of 
royalty fees to the franchisor. Where the franchise agreement gives the 
franchisor the right to collect and control the receipts of the 
franchisee (including but not limited to the right to deposit receipts 
into an account that the franchisor controls), deduct the royalty fee 
and remit the remainder to the franchisee, SBA has deemed that to be 
excessive control.

C. Franchisor Billing and Collecting From Franchisee's Customers

    Another basic indicator of an independent business is that its 
owners should have responsibility for running the business operations, 
which SBA has interpreted to include control over billing and 
collections. Therefore, provisions in a franchise agreement that give 
the franchisor the ability to manage the billing or collections 
function for a franchisee have generally been considered evidence of 
excessive control. SBA has accepted direct billing by a franchisor, 
however, when such practice is reasonable based on the business model, 
and is a standard and accepted industry practice for that industry. For 
example, in the fitness industry, many franchisees are part of a 
network of franchisee-owned businesses and the gym members are provided 
access to the entire network of fitness centers. Franchisor billing for 
that industry is necessary to enable the sharing of other facilities in 
the network.

D. Establishing a Price for the Sale of Assets Upon Termination, 
Expiration, or Non-Renewal of the Agreement

    SBA considers a franchisor's option to purchase the business assets 
upon termination, expiration or non-renewal of the franchise agreement 
as not creating excessive control over the franchisee. The franchisee, 
however, must maintain the ability to make a profit from its efforts 
and, therefore, a franchisor's right to purchase the franchisee's 
assets should not unduly restrict the ability of a franchisee to sell 
the assets at the best price. For example, SBA has considered a 
franchisor's right to control the appraisal process (such as by 
selecting the appraiser) to be evidence of excessive control. Those 
agreements that include the ability of both parties to establish Fair 
Market Value of the assets, on the other hand, have been considered 
acceptable (i.e., not excessive control).

E. Franchisor's Assumption of Control of Franchised Operations or 
Employees (``Step-In Rights'')

    The nature of the franchise relationship requires the franchisor to 
have the ability to protect the interest of the brand; therefore, SBA 
understands that a franchisor may need to step in and assume operations 
of the

[[Page 72751]]

franchisee's business under extreme circumstances. Such provisions have 
been deemed acceptable (i.e., not excessive control) where the 
franchise agreement limits the ability of the franchisor to step in and 
operate the business only in response to a specific type of critical 
incident and only for a limited time, and gives the franchisee the 
right to demand review of the situation. However, a franchisor's right 
to step in and take over the franchisee's operation for an unlimited 
amount of time or under routine circumstances has been considered 
excessive control. In addition, provisions in a franchise agreement 
that give the franchisor the ability to control or hire employees of 
the franchisee's business, other than approval of managers or key 
employees, have also been deemed to result in excessive control over 
the franchisee.

IV. New Issues That May Indicate Affiliation or Excessive Control

    Some franchise agreements that SBA has reviewed recently have 
contained new provisions that the Agency has found to be evidence of 
excessive control. These issues, described below in paragraphs A 
through C, do not appear to be prevalent in the franchise community. 
The Agency would like feedback on whether they should indeed be 
considered indicators of excessive control. SBA encourages commenters 
to provide detailed justification for their positions on these issues.

A. Pricing

    The Agency has taken the position that an independent business 
should maintain the ability to set its own pricing, which enables it to 
make a profit or risk a loss from its own actions. Some franchise 
agreements now include language giving the franchisor the ability to 
set both minimum and maximum prices that a franchisee may charge for 
its products or services. In some franchise agreements, the language is 
very broad, with no specific parameters or constraints on the 
franchisor's ability to set prices (unlike, for example, a 
specifically-timed promotional program or certain established national 
or regional accounts programs). The Agency has taken the position that 
franchisors that have the ability to set ranges for pricing in order to 
control national types of accounts or national advertising promotions 
are not affiliated with their franchisees as long as the pricing model 
is not applied in a way that would target a particular franchisee or 
location. SBA invites comments on whether this issue is an appropriate 
indicator of a business's independence, and under what circumstances.

B. Right of First Refusal (ROFR) on a Partial Assignment or Change of 
Ownership

    The Agency believes that it is not excessive control for a 
franchisor to have a ROFR (allowing the franchisor to match an offer 
for the purchase proposed by a third party) on a sale of the franchised 
business or the real estate where the business is operating. Some 
franchise agreements extend these ROFR provisions to other types of 
transfers, including a transfer of an ownership interest between 
existing owners of a franchisee entity (e.g., a sale of stock by one 
owner of a franchisee entity to another existing owner) or a transfer 
of an ownership interest by one of several existing owners to a third 
party. These ``partial change of ownership'' transactions do not 
contemplate a sale of the business entity but rather a sale of an 
ownership interest in the business entity. The Agency believes that the 
ability of the owners of a franchisee entity to change ownership 
percentages or control of the business entity among themselves or their 
family members is a basic feature of an independent business. In other 
words, the business entity should have the ability to transfer its 
interest among its owners or the families of the owners, and a 
franchisor should not have the ability to step in under these 
circumstances and become a partial owner of the franchisee's business 
without the franchisee's consent. However, if the partial change of 
ownership involves a transfer to an outside third party (not a current 
owner or a family member of a current owner), the issue becomes more 
complicated. SBA invites comments on partial change of ownership 
interest issues, including whether a franchisor should have the ability 
to match a third party's offer and become a partial owner of the 
business without the consent of the franchisee. SBA also invites 
comments regarding whether transfers between family members or other 
related parties or entities should impact these issues.

C. Option To Purchase/Lease Real Estate Owned by the Franchisee

    SBA has taken the position that an independent business must have 
the ability to control the real estate that it owns or is purchasing in 
connection with the establishment of a franchise. If a franchisor wants 
to control the particular real property on which the franchised 
business is to be located, the franchisor can acquire the property and 
lease it to the franchisee. However, if the franchisee is the owner of 
the real property, the Agency has taken the position that provisions in 
a franchise agreement that force the franchisee to sell the property to 
the franchisor upon expiration, termination or non-renewal of a 
franchise agreement are evidence of excessive control, even if the 
provision provides for payment of the Fair Market Value of the real 
estate. A franchisee may prefer to hold on to the property rather than 
sell it upon expiration, termination or non-renewal of the franchise 
agreement. SBA believes that an independent franchisee that has met its 
obligations under the franchise agreement and that owns the real 
property should not be forced to sell the property and should be able 
to make a profit from the operation of a subsequent business on the 
site or through other income-producing means, subject to any non-
compete provisions or de-branding requirements of the franchise 
location. SBA has not, however, objected to language in franchise 
agreements that gives a franchisor a ROFR on the sale of real estate 
(the ability to match the offer of a third party). SBA is interested in 
comments regarding real estate transactions that may occur during or at 
the conclusion of the franchise agreement term, and whether brand 
protection by the franchisor should be balanced against the 
franchisee's right to control and/or dispose of the real property with 
complete discretion.
    Many franchise agreements give the franchisor the option to 
purchase the real estate in the event of a default under the agreement. 
It may be reasonable to conclude that if the franchisee does not 
fulfill its obligations under the franchise agreement, the franchisor 
should have the right to receive the benefit of its bargain. In other 
words, if the franchisee defaults under the franchise agreement, the 
franchisor should have the right to lease the real property from the 
franchisee (for itself or a third party franchisee) up to and including 
the full term of the original franchise agreement. Upon expiration of 
the original term of the franchise agreement, however, SBA has 
determined that a franchisor should not have the ability to continue 
leasing the property or to force any renewal rights under the franchise 
agreement.
    We request comments on the impact of these issues on the excessive 
control determination, including specifics such as whether any such 
leasing option should be limited in any way or whether the franchisor 
should be able to require extension of the terms of the lease beyond 
the initial term of the

[[Page 72752]]

franchise agreement, and if so, under what circumstances.

V. Current Process for Reviewing Franchise Agreements and Related 
Documents for SBA's Business Loan Programs

    As stated above in Section I, when a small business loan applicant 
has or will have a franchise, license, dealer, jobber or similar 
relationship, and such relationship (or product, service or trademark 
covered by such relationship) is critical to the small business 
applicant's business operation, SBA requires a determination as to 
whether affiliation exists between the franchisor and the franchisee. 
The current process for reviewing franchise agreements and related 
documents and making this determination for SBA's business loan 
programs is outlined in SBA's SOP 50 10 5(G), Lender and Development 
Company Loan Programs, as amended. (The SOP may be found at 
www.sba.gov/for-lenders.) The review is conducted by SBA attorneys for 
7(a) loan applications and for 504 loan applications submitted under 
non-delegated processing. For 504 loan applications processed under a 
CDC's delegated authority, the CDC is responsible for conducting this 
review. For 7(a) loan applications processed under a lender's delegated 
authority, the lender has historically been responsible for conducting 
this review.
    SBA has recognized that delegated lenders in the 7(a) program have 
become reluctant to use their delegated authority to make loans to 
franchisees, particularly where the franchise agreement contains novel 
or complicated provisions, and are sending such loan applications to 
SBA to be processed on a non-delegated basis. As a result, the burden 
of processing such loan applications on a non-delegated basis (which 
includes other eligibility determinations unrelated to the franchise 
relationship and credit underwriting) has shifted to SBA. In order to 
encourage 7(a) lenders with delegated authority to continue making 
franchise loans on a delegated basis, SBA has been providing such 
lenders the option to submit the franchise agreement and related 
documents to SBA for review and an affiliation determination. The 
lender can then process the loan under its delegated authority. This 
alternate process has become an attractive option for delegated lenders 
with franchise loan applications but has resulted in a significant 
shift in workload from delegated lenders to SBA, and a shift in 
responsibility from the delegated lender back to the SBA. SBA invites 
comments on this process. SBA also seeks suggestions on improvements to 
the process, whether it should be limited in some way in order to 
manage the workload and maintain a reasonable turn-around time for all 
franchise loan applications while preserving SBA review for those that 
are truly novel or complicated, or whether other alternatives may prove 
more successful and efficient in assisting delegated lenders in 
determining affiliation based on a franchise or similar business 
relationship.
    Currently, delegated lenders that make their own franchise 
determinations have two resources to use to assist with the review 
process:
    1. Registry of approved agreements--SBA makes available a listing 
of franchise agreements that it has determined do not create excessive 
control on the part of the franchisor and therefore do not create 
affiliation between the franchisor and franchisee. The listing of 
approved agreements, by year, is posted on SBA's Web site at 
www.sba.gov/for-lenders. This information is also currently available 
to lenders and other members of the public at no cost at 
www.franchiseregistry.com (the Registry). If agreements are found to 
have provisions deemed to create affiliation, and therefore not 
eligible for listing, SBA works with the franchisor to draft changes to 
the agreement or an addendum to the agreement to resolve the issue. If 
the issue is resolved through a change to the agreement or an addendum, 
the approved agreement and addendum are listed by date of the agreement 
(date that the franchisor placed the agreement into circulation). If a 
lender is making a loan to a franchisee and wants to know whether the 
franchise has been approved, the lender must have the correct year of 
the agreement that the applicant/franchisee is operating under. If the 
franchise agreement that the applicant will operate under is listed on 
SBA's Web site or the Registry, the lender does not need to review the 
franchise agreement and related documents.
    2. Franchise Findings List--This is a list of franchise agreements 
reviewed by SBA that SBA has concluded contain provisions that 
represent excessive control on the part of the franchisor. The 
information provided by the SBA Franchise Findings List is used by 
lenders to ensure they are making informed affiliation determinations. 
Lenders consult the ``fix available'' category on the List to see if 
SBA and the franchisor have agreed to a solution to remedy the specific 
issues noted (either through a change to the agreement or an addendum). 
If a franchise agreement has no negotiated fix available and the noted 
findings remain in the agreement, then the agreement should be 
determined to result in affiliation. Lenders can contact SBA counsel in 
the District Office or the SBA Chief Franchise Counsel for specific 
questions regarding franchise affiliation determinations.
    Lenders that believe SBA's franchise affiliation decision is 
inconsistent with the Agency's policies and procedures may appeal the 
decision by forwarding a copy of the decision, along with an 
explanation of how the determination is inconsistent with the 
applicable version of SBA's SOP 50 10, to <a href="/cdn-cgi/l/email-protection#eea89c8f808d86879d8baf9e9e8b8f829dae9d8c8fc0898198"><span class="__cf_email__" data-cfemail="95d3e7f4fbf6fdfce6f0d4e5e5f0f4f9e6d5e6f7f4bbf2fae3">[email protected]</span></a>. 
Franchise appeals are reviewed by the SBA Franchise Committee comprised 
of Office of General Counsel attorneys. For purposes of franchise 
appeals, the Director for Financial Assistance or designee is an ex 
officio member of the Committee. The Associate General Counsel for 
Financial Law & Lender Oversight has the authority to reconsider 
decisions rendered by the Committee. In addition, franchisors that 
would like to appeal SBA's decision not to place them on the Registry 
may do so following the same procedures. SBA seeks information 
regarding these resources, along with their usefulness and efficiency 
in providing information to assist lenders in making affiliation 
determinations effectively and with appropriate timing.

VI. Request for Comments

    SBA welcomes comments on all franchise affiliation and excessive 
control related issues discussed in this notice. The Agency also 
specifically requests comments on the following questions, some of 
which could require new statutory or regulatory authority:
    (1) How can the review of franchise relationships be simplified and 
still ensure that SBA guaranteed loans are only provided to independent 
small businesses as required by statute and regulation?
    (2) Currently, when a small business loan applicant has or will 
have a franchise, license, dealer, jobber or similar relationship and 
such relationship (or product, service or trademark covered by such 
relationship) is critical to the applicant's business operation, SBA 
requires a review of the agreement and any related documents governing 
the relationship (or product, service or trademark). Is it sufficiently 
clear what relationships are required to be reviewed under this 
standard?
    (3) How does SBA's process for determining affiliation (excessive 
control) of franchisors and franchisees

[[Page 72753]]

affect small businesses during and upon termination of the franchise 
agreement?
    (4) Should 13 CFR 121.103(i) be modified to specifically address 
the provisions SBA has determined evidence excessive control by the 
franchisor?
    (5) Should 13 CFR 121.103(i) be modified to incorporate a reference 
to ``Loan Program Requirements, as defined in 13 CFR 120.10,'' because 
SBA's policies in this area are explained in the Loan Program 
Requirements, and more particularly in SBA's SOP 50 10?
    (6) Should SBA develop a process to accept a certification of non-
affiliation from a franchisor and/or its counsel, based on standards 
established by SBA, in lieu of SBA or lender review of the franchise 
agreement and related documents?
    (7) If so, should that process be available only with respect to 
``renewal requests''--i.e., only for franchisors that have had 
franchise agreements reviewed and approved by SBA in a prior year?
    (8) If an applicant is not a franchisee but has an affiliate that 
is a franchisee, should SBA continue to review the affiliate's 
franchise agreement and related documents as part of the small business 
size determination of the applicant?
    (9) Should SBA continue to list agreements on a central registry 
and, if so, where should that registry be maintained and by whom?
    (10) If there is a cost associated with the maintenance of the 
registry, who should bear that cost? Should there be a charge for 
listing of agreements on a registry and, if so, who should bear the 
cost for such listing? SBA notes that there are statutory limitations 
on SBA's current authority to charge, retain and use fees.
    (11) In light of the fact that SBA lists approved franchises on its 
Web site, is there a need to continue to post the Franchise Findings 
List as well?
    (12) Should the franchise agreement review process be streamlined 
and/or simplified and, if so, in what way?
    (13) Should the franchise appeal process be changed and, if so, in 
what way?

    Dated: December 2, 2014.
Linda S. Rusche,
Director, Office of Financial Assistance.
[FR Doc. 2014-28698 Filed 12-5-14; 8:45 am]
BILLING CODE 8025-01-P


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