Red Flags: Predatory franchise lending

If you have experienced 4 or more of these most significant warning signs, you should investigate further.

Your problems may have much more to do with falling into a well-concealed trap rather than anything you could have done after you signed.

Predatory franchise lending: a commercial arrangement between bankers, sales agents and franchisor that results in catastrophic but predictable loss to the lender/franchise investor.

Predatory lending breaches the banker’s lending duty to: act prudently, perform adequate lender due diligence, and not “loan-push”.

Red Flags

  1. I worked with a business broker or sales agent to look for a good franchise system.
  2. I came to talk to the the sales agent about one franchise system but ended up buying another one.
  3. There was more than one equipment and leasehold improvement appraisal done.
  4. It took two checks or bank drafts to buy one franchise.
  5. The loan proceeds were disbursed before I saw: a disclosure document, franchise agreement or took possession of the store.
  6. I was sent to talk to a specific loan officer, of a specific bank, at a specific branch.
  7. The bank, who chose the appraisers, also chose the highest appraisal.
  8. The loan registration form came from the franchisor or sales agent.
  9. Government guaranteed loan was approved in less than 14 days.
  10. My banker said they’d have I’d have to have two loans instead of one.
  11. More than three other franchisees in my system, had the same lending officer.
  12. The franchisor is a member of a national trade association.

There are things you can do and I will be writing on these in the near future.

Any of this sound familiar?

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