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New Franchise Loan Transparency Bill Introduced in the US Senate

Posted on Date: Aug 2, 2019

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AAFD Members Urged to Call Your Representatives in Support

As our friend, Keith Miller, principal of Franchise Advocacy Consulting, likes to say, there are far more franchisees in this country than franchisors. When we join our voices together, we can be a powerful and persuasive political force. It’s time to raise your voice to support an exciting new bill that was just introduced on July 31, 2019 in the United States Senate by Senator Catherine Cortez Masto (D-NV). While the bill’s overall aims are modest, the changes—if enacted—will require franchisors to provide more transparency to prospective franchisees or face financial consequences. 

More franchisor transparency is a good thing for all franchisees and can help create momentum for future fair franchising legislation. So, we are asking AAFD members to contact their Senators and voice your support for S.2383, The Small Business Administration Franchise Loan Transparency Act of 2019. 

What Is the Small Business Administration Franchise Loan Transparency Act of 2019? 

Many new franchisees take out loans from the Small Business Administration (SBA) to finance the startup costs of their franchise. In this way, the federal government plays a role in supporting the creation of new franchise businesses. 

Certain unscrupulous franchisors inflate their revenue numbers while downplaying how many franchise units close each year. Potential franchisees, reassured by these inaccurate numbers, will take out SBA loans only to struggle at a business they were convinced was a “sure thing.”  

Recently, Keith Miller, testified about these practices in front of the Senate Banking, Housing, and Urban Affairs Committee’s Subcommittee on Economic Policy. 

Ranking Member, Catherine Cortez Masto (D-Nev) was listening. In response to Keith’s testimony and contacts from franchisees in Nevada, she introduced the Small Business Administration Franchise Loan Transparency Act of 2019 in the Senate on July 31, 2019.   

What Does the SBA Franchise Loan Transparency Act Do?   

Senator Cortez Masto’s bill is designed to “establish minimum standards of disclosure by franchises whose franchisees use loans guaranteed by the Small Business Administration.” To accomplish this, the bill requires franchisors to accurately disclose: 

  • The average and median first-year revenues for all franchise businesses 
  • The total number of franchises that ceased operations or were transferred during their first year of operation 
  • The average and median revenues for all franchise businesses 

Additionally, the bill prevents the disclosure of financial performance representations by the franchisor or a third party outside of the required disclosure document 

If the franchisor provides inaccurate information, the bill would empower the SBA to hold the franchisor responsible for the balance of any SBA loan that was provided due to the wrong information. In other words, a franchisor that inflates its numbers may be on the hook for any SBA loans its franchisees took out based on those numbers.  

It is worth noting that Senator Cortez Masto’s bill exempts franchisors in the lodging industry from these requirements. 

The AAFD Endorses the SBA Franchise Loan Transparency Act of 2019 

After carefully reviewing the language in the Small Business Administration Franchise Loan Transparency Act of 2019, the AAFD is proud to endorse the proposed legislation. Said AAFD Chairman, Robert Purvin, “This bill will hold franchisors accountable and liable for SBA loans that are extended based upon false representations of a system’s financial performance.” 

Keith Miller agrees, In making the decision to buy a franchise, it is critical that prospective franchise owners receive reliable disclosure information, especially when accessing government guaranteed loans that put all their assets at risk.Miller adds,This legislation will make significant improvements to the quality of disclosure information prospective franchisees receive.” 

Let Your Senators Know How You Feel 

Your Senators represent YOU, so make sure they know that you support the SBA Franchise Loan Transparency Act of 2019. Politicians need to please their constituents, especially the franchisees who bring revenue and jobs to their state. They know this, which is why they pay attention when they receive messages from the franchisees in their state. 

Call or email both your Senators and encourage them to support the SBA Franchise Loan Transparency Act of 2019 which seeks to protect franchisees. If you aren’t sure how to reach your Senator, find out here.  Better yet, during the August recess, attend an event your Senator is at and talk to them personally. 

We also encourage you to read the full text of the Small Business Administration Franchise Loan Transparency Act of 2019 and to share this message with your fellow franchisees.  

Let’s raise our voices together. Support S.2383! 

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