Franchising sometimes works very well for investors.
Sometimes not so well.
Canadian franchises are almost 100% financed through 6 national banks. The vast majority of the debt financing is through a federal guaranteed loan program. That is after your life savings (redundancy package) and love money are put into the pot.
- I will be looking much more closely at the lease financing arrangements in the United States in the next little while.
Principle: Some lease contracts and their accompanying personal guarantees are void (ie. unenforceable by a Court and you get the $ back) because they are judged to be:
- unconscionable and/or
- have “mixed” asset types which is a violation of commercial laws.
In addition some lease contracts maybe in violation of “normal” state usury laws or franchise-specific statutes.
Everyone keeps paying their lease, assuming that it is a valid contract that they will be forced to pay if they challenge the validity of the agreement. Guess again.
The more I look, there are lots of very sloppy and very questionable leases out there.
To Do
- Every franchisee should get out their lease papers.
- Find out what company has their lease.
- Note: When it started, when it ends and the monthly payment.
Stay tuned as I bring forward some information that has a direct bearing on thousands of U.S. franchisees in these tough times.
