Use this checklist to evaluate the key risk factors and underwriting considerations in SBA franchise deals.

Step 1: Verify Franchise Agreement Terms

• Is there a valid and assignable franchise agreement?
• Are there transfer fees?
• Are seller’s royalties and advertising fees consistent with current franchise disclosure document?
• What are buyer approval and training conditions?

Step 2: Adjust Financials for Franchise Obligations

• Royalty fees (e.g., 5%–8%)
• Brand/marketing fees (e.g., 2%–4%)
• Required inventory or purchasing programs
• Normalize owner compensation and any perks tied to brand benefits

Step 3: Identify Risks

• Brand goodwill that isn’t transferrable
• Buyer receives no goodwill (contractually)
• Industry rule of thumb without adjusting for fees

Lender Tips

• Franchise underwriting and business valuations must reflect actual cash flow to the buyer post-fees and obligations—not brand potential alone.
• Request a copy of the FDD and franchise agreement early to identify risks and required cash flow adjustments.