1. Short title
This Act may be cited as the “Franchise Financing Improvement Act of 2014”.
Franchise Financing Improvement Act of 2014
A BILL
To amend the Small Business Act to establish rules for franchisee eligibility for financial assistance under certain small business programs.
2. Eligibility for financial assistance
Section 2 of the Small Business Act (15 U.S.C. 631) is amended by adding at the end the following new subsection:
“(k) The Administrator shall make financial assistance available to franchisees under this Act or titles III and V of the Small Business Investment Act of 1958 if the franchisee is not affiliated with the franchisor pursuant to section 3 of this Act.”
3. Affiliation rules for franchisees
Section 3(a)(5) of the Small Business Act (15 U.S.C. 632(a)(5)) is amended by adding at the end the following new subparagraphs:
“(C) Eligibility of franchisees—For purposes of determining eligibility of franchisees for financial assistance under this Act or titles III and V of the Small Business Act, a franchisee shall not be considered affiliated with the franchisor if—
“(i) the franchisor has filed a disclosure document pursuant to—
“(I) part 436 of title 16, Code of Federal Regulations (or any successor regulation); or
“(II) any law or regulation of a State or territory that mandates disclosure of information to a franchisee; and
“(ii) the franchisee, upon default on a loan (whether guaranteed by the Administrator or not) has no ability to obtain financial assistance from the franchisor to repay such loan. For purposes of this clause, a franchisor’s authority to repurchase the franchise for failure to comply with the terms and conditions of the franchise agreement or have the right of first refusal to purchase the franchise from the franchisee shall not be considered financial assistance to repay loans issued to the franchisee.
“(D) Definitions—For the purposes of subparagraph (C), the terms franchisor and franchisee have the meaning given those terms in section 436.1 of title 16, Code of Federal Regulations as of January 1, 2014, or any successor regulation.”
4. Issuance of regulations
The Administrator, after the opportunity for notice and comment, shall issue regulations to implement this Act within 120 days of enactment.
If the Administrator fails to promulgate such regulations, the Administrator shall, unless there is clear and convincing evidence of fraud, honor the terms and conditions of any guarantee issued by the Administrator pursuant to the Small Business Act (15 U.S.C. 631 et seq.) or titles III and V of the Small Business Investment Act of 1958 (15 U.S.C. 661 et seq.) without regard to whether the entity complied with any Standard Operating Procedure issued by the Administrator until such time as the Administrator issues regulations under subsection (a).
For purposes of subsection (b), the term Standard Operating Procedure shall have the meaning given the term SOPs in section 120.10 of title 13, Code of Federal Regulations as in effect on January 1, 2014, or any successor regulation.