Summer Proposed Rule-Making That Could Impact Your Prospective Franchisees
May 31st, 2022 by Meme Moy
|The National Association of Government Guaranteed Lenders (NAGGL) just had its Spring Conference and FRANdata was there gathering insight on the latest in franchise financing.
What’s the buzz on the upcoming New SBA proposed rule-making coming out in the summer?
SBA is taking lessons learned from the pandemic, trying not to lose the momentum it gained with the goal to streamline its program. This summer’s proposed rule-making will take concepts that are now being finalized from the community advantage pilot loan program in order to help streamline their regular program.
First, it’s important to step back and understand a little about the SBA’s Community Advantage(CA) pilot program. Community Advantage (CA) is a pilot loan program introduced by the U.S. Small Business Administration (SBA) to meet the credit, management, and technical assistance needs of small businesses in underserved markets. On April 29, 2022, the U.S. Small Business Administration announced important changes to the Community Advantage (CA) Pilot Program. 87 FR 25398.
Why is this important? This guide is important since this will serve as a blueprint for the upcoming proposed rule-making changes to the 7a loans program.
The franchise community will want to weigh in on whether these simplification proposed rules would really benefit their franchisees. We fully anticipate that there will be something affecting franchising in this rule-making.
- SBA focus is to simplify affiliation which could potentially have a huge benefit for borrowers. The CA program proposed rule changes indicated that SBA is specifically removing the principal of control of one entity over another when determining affiliation because the concept of control has proven particularly burdensome for applicants and lenders to understand and implement.
- SBA as a program is getting out of the business of determining character based on criminal record. Previously, any business with an Associate who was incarcerated, on probation or on parole or had been indicted for a felony was ineligible for SBA financing. The applicant will still need to sign 1919 but the lender can do what they want with it the SBA is not requiring anything. This is a hurdle that is going away but lenders can still impose their own rules.
- The proposed rule will also help SBA’s ability to finance ESOPs (Employee Stock Ownership Program) and Co-ops for employers with less than 20 employees– which is currently something hard for the SBA to transact with. They are going to change the partial ownership rule in order to facilitate ESOP and Co-op loans