FRANdata Can Help Fill Void of Information about Franchises
The Small Business Administration disclosed several months ago that it was considering rules changes that would end its franchise directory. The ax fell Monday, when the Federal Register announced that the directory was being eliminated effective May 11.
The SBA Directory was created about five years ago so lenders could check whether a franchise was eligible for SBA financing. The SBA Directory also has served as a tool for potential franchisees as they conducted whether a brand has a solid reputation.
Without the directory, SBA lenders will need to do more work to assess whether a franchise qualifies for agency loans. And entrepreneurs will have to do extra digging, too, as they weigh an investment.
FRANdata as an Alternative
Another option for mining reliable information is FRANdata’s Franchise Registry, which has helped franchisors navigate SBA processes for 35 years. Virginia-based FRANdata conducts an array of franchise industry research and is often quoted by authoritative business news sources such as The Wall Street Journal, Entrepreneur magazine, Forbes and franchise specialty publications. FRANdata is the research partner of the International Franchise Association.
“FRANdata is highly regarded by SBA at its highest levels,” says Crystal Keehn, Goddard Schools franchise finance director. “With the planned action to shut down the Franchise Directory, SBA is encouraging lenders to rely on FRANdata for analysis and insight. FRANdata has been an essential partner to Goddard School in franchise financing.”
Pros, Cons of Directory’s Demise
Anthony Byrd, director of business development at Benetrends Financial, views the elimination of the SBA Directory in a positive light. The directory “unfortunately caused multiple delays” in the loan approval process, Byrd said in a February 2023 Franchise Times article.
“I get what they were trying to do, making sure a franchise is a franchise, but they have to be responsive,” he added in the article. “Right now, we’re dealing with two- to three-month wait times to have a franchise approved on the directory. That stops the banks from funding a deal.” Byrd told Franchise Times that the directory was helpful to some lenders but was burdensome to lenders who frequently work with franchises, particularly when emerging brands are involved.
The SBA received positive and negative comments regarding possible elimination of the directory. The North American Securities Administrators Association, which provides guidance for state franchise regulators, told Franchise Times that the directory is “an effective tool for prospective franchisees as they perform their due diligence.”
In another comment favoring keeping the Franchise Directory, Meadows Bank praised the publication as “very effective and well-run” and a valuable reference for lenders. Franchise Times further quoted the Meadows Bank comment as saying, “We are a small lender and don’t have the in-house legal expertise for this review,” which compels the bank to outsource legal services and then “pass this cost along to the borrower. The bottom line on this: if it isn’t broke, don’t fix it.”