Earlier this week, the Senate passed the Nearly $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act. This bill, known as Phase 3, is beneficial for many franchise systems and hospitality brands and contains generous and unprecedented provisions to provide liquidity to small businesses to keep their employees on the payroll list. The House of Representatives passed the CARES Act on Friday and the president signed the law shortly after. The value of SBA 7(a) loans is easily visible to franchisees, as these loans can be a solid source of financing for new franchisees. It goes without saying that SBA 7(a) loans involve a more rigorous verification and qualification process. This verification and qualification process applies not only to the “borrowing franchisees”, but also to the franchisee and, in particular, to the nature of the franchise and the terms of the franchise agreement. Therefore, if you are preparing, developing and updating your FDD and franchise agreement, you as a franchisor must be aware of the qualification requirements for SBA franchise agreements. Among the many SBA credit requirements and/or settlements that can impact your franchise agreement, the Small Business Administration`s “7(a)” credit program serves as a reliable and effective source of financing for new franchisees. The SBA 7(a) Loan program is the main credit program offered by the SBA to franchisees who purchase a franchise and build their franchise operations.
Under this programme, the SBA does not distribute loans, but encourages qualified banks to lend funds to qualified start-ups and, in return, the SBA guarantees the bank the repayment of a significant part (up to 85%) of the loan. Below is a tentative summary of some of the financial assistance that may be made available to franchisees and franchisors under the CARES Act. . . .