This is the case in both Canada and the United States. In many franchise categories, that means understanding the U.S. Small Business Administration (SBA) loan ecosystem—particularly the 7(a) program (business acquisition, build-out, equipment, and working capital) and, less commonly, the 504 program (owner-occupied real estate and long-lived equipment).
From a franchise lawyer’s perspective, the most important point is this: SBA lending is not just a lender issue. Your buyer profiles, ownership structures, and even your franchise agreement terms can determine whether SBA financing is available at all.
Why franchisors get pulled into SBA deals
The borrower is the franchisee’s U.S. operating company, but SBA lenders commonly review the US Franchise Disclosure Document (FDD) and the form franchise agreement to be signed to confirm the franchisee is an independent small business and to understand what happens on default or transfer. Provisions that often trigger lender questions include: (i) unusually broad franchisor control over day-to-day operations (beyond brand standards), (ii) aggressive fee-collection remedies that could interfere with lender collateral, and (iii) termination/transfer language that creates uncertainty about continuity of operations. In other words, your legal documents can become factors in underwriting decisions.
Recent SBA eligibility tightening: citizenship status and “beneficial ownership”
SBA policy updates under the Trump administration have increased scrutiny of who ultimately owns and controls the U.S. franchisee borrower. Practically, many lenders are now treating SBA eligibility as requiring that the borrower’s beneficial ownership be held only by U.S. citizens (by tracing ownership through holding companies and other entities).
For Canadian franchisors, this is a meaningful shift because the pool of potential franchisees who can take advantage of SBA franchise lending programs now excludes permanent residents/green card holders.
Current issues to be aware of
- Canadian ownership anywhere in the chain: A U.S. franchisee operating entity owned (even indirectly) by non-US individuals, or a foreign-owned holding company or family trust can make lenders pause or decline SBA financing outright.
- Minority non-US investors: A “silent” non-US investor, convertible noteholder, or option holder can still raise SBA eligibility questions because lenders look at beneficial ownership and control rights, not just day-to-day involvement.
- Relocation franchisees: Buyers planning to move to the U.S. to operate the franchised business will generally be ineligible for SBA financing unless they are US citizens and otherwise meet SBA lending criteria.
- Practical impacts on franchisors: The result of recent changes to SBA lending rules means that SBA-eligible buyer pools are smaller, diligence timelines and ownership tracing may be longer, late-stage deal fallouts may become more common, and franchisors may see an increase in reliance on conventional bank credit or private financing with higher equity requirements.
Practical steps for Canadian franchisors
- Screen earlier: incorporate basic questions in your sales process about proposed ownership, investors, and whether principals are U.S. citizens, and encourage early calls with SBA-active lenders.
- Have U.S. franchise counsel “pressure-test” the franchise agreement: identify provisions that routinely slow lender reviews (control, termination/transfer, fee remedies) and decide whether to (i) revise, (ii) add a lender-facing explanation, or (iii) prepare an SBA-focused addendum where appropriate.
- Register for inclusion on the SBA Franchise Directory: if SBA financing is part of your growth and sales strategy for U.S. franchisees, have your name added to the SBA Franchise Directory early.
- Diversify financing pathways: maintain relationships with conventional lenders and equipment/lease providers and set realistic equity expectations where SBA may not be available.
- Re-forecast U.S. development: if your U.S. growth model assumes SBA for a high percentage of buyers, update timing and conversion assumptions to reflect tighter eligibility and longer underwriting.
SBA vs. Canada’s CSBFP (CSBL): why Canadian expectations don’t always translate
Both the SBA programs and Canada’s Canada Small Business Financing Program (CSBFP) (also known as the Canada Small Business Loan Program / CSBL) are designed to encourage lending by sharing risk with participating financial institutions.
In the U.S., SBA eligibility has become particularly sensitive to borrower ownership/immigration status and to how lenders interpret “beneficial ownership” and control—issues that often surface in cross-border franchise structures.
SBA practice also tends to involve more standardized franchise-specific review (e.g., lender review of the FDD and franchise agreement and reference to SBA franchise eligibility guidance). By contrast, Canadian CSBFP financing is usually a more conventional bank process focused on eligible asset classes and borrower financials, with less program-driven attention to franchise system “control” concepts. For Canadian brands, the key takeaway is to avoid assuming a CSBFP experience will predict U.S. SBA eligibility or timing.
Bottom line
If SBA financing matters to your U.S. growth plan, treat eligibility as a front-end legal and sales issue, not a back-end banking detail. The earlier you surface ownership/beneficial ownership questions and the cleaner your franchise documents are for lender review, the fewer surprises you will have at commitment or closing.
