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Franchise Registry to Speed Loans

April 29, 1998|STEPHEN GREGORY | SPECIAL TO THE TIMES

Looking to make it easier for would-be franchise owners to apply for loans, the U.S. Small Business Administration is compiling a central registry of pre-approved franchise systems for which the agency is willing to provide loan guarantees.

The SBA hopes to have the registry in place by June, spokesman Mike Stamler said.

Currently, each of the SBA's 69 district offices nationwide considers franchise loan requests case by case. Evaluators at each office must read the proposed franchiser-franchisee agreements to make sure the loan applicant would be the sole owner and primary decision-maker of the franchise, among other requirements, Stamler said. The process can take days, even weeks.

With the registry, each office will be able to determine the eligibility of a specific franchise system in minutes simply by consulting lists of pre-approved companies.

The new system will not only expedite the process, Stamler said, but erase inconsistencies among the districts over eligible systems. Stamler said the information will be available free on the SBA's Web site, http://www.sba.gov

Franchisee advocacy groups welcome the change. "It's going to be a huge benefit," said Bob Purvin of the nonprofit trade group American Assn. of Franchisees and Dealers, based in San Diego.

Purvin sees the registry as a way to identify franchise systems that provide broad autonomy to their franchisees, particularly given the SBA's requirements that the agreements not strip applicants of their independent, small-business status.

"A lot of big businesses are trying to get away with small-business borrowing by making themselves look like small businesses," Purvin said. "The SBA sort of regulates how much control a franchiser can exert over an owner, which is to the benefit of the franchise owner. If the franchiser exerts too much control over the agreement, the SBA will not consider it an independent business."

Stamler agreed. "To the extent that there will be careful consideration that the franchise will be permitted to operate as an independent business, [the registry] shows that," he said.

Frandata Corp., a Washington-based research company, was contracted early last month to compile the registry. The task is formidable.

The firm has been asked to peruse hundreds of franchise agreements. In the last four years, the SBA has approved loan guarantees for 1,166 separate franchise systems. No figures were available for how many were turned down.

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