Many franchise agreements give the franchisor the opportunity to acquire the property in the event of default under the agreement. It may be reasonable to conclude that the franchisor should have the right to benefit from its agreement if it does not meet its obligations under the franchise agreement. In other words, if the franchisee is late under the franchise agreement, the franchisor should have the right to lease the property to the franchisee (for himself or for a third party franchisee) until the full term of the original franchise agreement. However, at the expiry of the original term of the franchise agreement, the SBA has decided that a franchisor should not be able to continue to lease the property or impose renewal fees under the franchise agreement. The SBA acknowledged that program 7 (a) delegated lenders are reluctant to use their delegated lending power to franchisees, particularly when the franchise agreement contains new or complex provisions, and they send such loan applications to the SBA to process them on an undated basis. As a result, the burden of processing these credit applications on a non-delegated basis (including other findings of suitability that have nothing to do with the franchise report and the letter of credit) has shifted to the SBA. In order to encourage lenders of 7 (a) delegates to continue to grant franchised loans on a delegated basis, the SBA has given these lenders the opportunity to submit the franchise agreement and related SBA documents for verification and determination of membership. The lender can then process the loan under its delegated authority. This alternative process has become an attractive option for delegated lenders with franchise loan applications, but it has resulted in a significant transfer of the workload of delegated lenders to the SBA and a transfer of responsibility from the delegated lender to the SBA. The SBA is seeking feedback on this process. SBA is also looking for suggestions for improving the process, whether it should be limited in one way or another in order to manage workload and maintain an appropriate turnaround time for all franchised loan applications, while SBA verification is maintained for those who are truly new or complicated, or whether other alternatives may be more effective in helping delegated lenders determine membership on the basis of a franchise or relationship similar business cases.
The nature of the franchise relationship requires the franchisor to be able to protect the interests of the brand; Therefore, sBA is aware that a franchisor must intervene in extreme circumstances and resume operation of the business by Start Printed Page 72751franchisee. Such provisions were found to be acceptable (i.e., there is no excessive control) where the franchise agreement restricts the franchisor`s ability to enter and operate the transaction only in response to a particular type of critical and time-limited incident and grants the franchisee the right to request a review of the situation.