Glossary · Reading the business
Franchise system
In short
A franchise system is a business model where a franchisor grants a franchisee the right to operate a business using their established brand, products, and operating procedures in exchange for fees.
What it means in a deal
If you're buying a franchise, the SBA has specific rules. The franchise system must be listed on the SBA Franchise Directory or have an approved addendum. Lenders will verify the franchise agreement and ensure it complies with SBA eligibility, especially regarding negative control or affiliation.
Official sources
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 — Lender and Development Company Loan Programs
U.S. Small Business Administration · SBA Standard Operating Procedure
Last checked 2026-06-15. Official sources control — verify before relying on any rule for a live deal.
Related terms
Common questions about Franchise system
- If I am buying a franchise, does the SBA need to approve the franchise system?
- What if a franchise system is not listed on the SBA Franchise Directory but the agreement is SBA-compliant?
- What specific due diligence must a lender perform if a franchise system is not listed on the SBA Franchise Directory?
- What specific requirements apply to a franchise system for SBA 7(a) loan eligibility?
- How does the SBA evaluate an emerging franchise system for 7(a) loan eligibility?
- How do I check if a specific franchise system is eligible for SBA 7(a) financing?
Defined by CapBench SBA Intelligence — plain-English definitions for business buyers, lenders, advisors, and AI agents, grounded in public SBA rules and records. Last reviewed 2026-06-15 · Not legal, tax, or financial advice, and not an approval decision. Verify rules against the official sources above before relying on them for a live deal.
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