Several thousand, I’d imagine.
How? The moral hazard-riddled, Canada Small Business Financing Program.
Details:
- WikiFranchise.org: Immigrants as Prey, Cannon fodder, Language shortcomings create a vulnerability
- Franchising Opportunism, 2005 paper
Several thousand, I’d imagine.
How? The moral hazard-riddled, Canada Small Business Financing Program.
Details:
Canada has a well-earned, international reputation for franchise investors.
Mom-and-pop Tim Hortons franchisee investments:
see William K. Black and an criminogenic environment,
Weak Ontario franchise law + lapdog CDN insolvency law + predatory franchise lending = Canadian securities regulation weakest link into North American capital markets
Moral indignation is a technique used to endow the idiot with dignity.
The latest pathetic example is the entirely predictable Lick’s “fiasco”.
Please: give me a break. Like it hasn’t been happening for 30, 40 years with the full knowledge of the legal, banking and political communities. Take a look at WikiFranchise.org to hear those inconvenient life stories.
Sure when you lose big-time it hurts. but where were the tears for the thousands of others that went before you?
My experience is that the real reason many franchisees are upset about not being on the power end of the relationship. They got stuck with the shit end of the stick before they could stick the next guy.
And this may sound harsh, but they will double-cross anyone that offers help in good faith.
Drop the scales from your eyes and grow up.
I wouldn’t have seen it if I hadn’t believed it. Marshall McLuhan.
What franchisor sends this message to the retail market?
Is it in acting in bad faith by destroying all existing Lick’s franchisees’ equity?
Media coverage:
The franchise bar, with perfect foreknowledge, will take what is left of their money in what will be (in the end) a hopelessly futile attempt at legal justice in Ontario. Talk to your premier and your small business loan provider not your a franchise lawyer.
John Lorinc wrote the book on franchising from a franchisee’s investor viewpoint.
I’m glad to see it is still available to buy online and is in many Canadian libraries.
The hidden banking side is revealed in Chapter 4, The 90% Solution: Franchise Economics, some of which I excerpted in a WikiFranchise.org post.
What did the business press have to say about Lorinc’s work?:
Finlayson strikes a cautionary note, specifically about the hinted at misuse of the Canada Small Business Financing program, CSBFP:
Does all this matter to you? Yes, it does. In 1993, in the wake of vigorous complaints by small-business owners that Canadian banks were reluctant to finance them, Ottawa raised the ceiling on loans guaranteed by the Small Business Loans Administration to $250,000 and its guarantee rate from 85 per cent to 90 per cent, sparking a bank lending rush to franchisees and shifting the risk of franchise investments onto taxpayers’ (your) shoulders.
The Risk: Only a fraction of the Liars’ Loans are ever claimed by the banks, thereby grossly understating Industry Canada’s default statistics (Franchised v. Non-Franchised loan performance). The franchisee thinks he signed a government-backed loan but it never gets registered as such. As their bankruptcy, loss of life savings, marital and family breakdown escalate over the life of their 12 to 18 month franchise career, the franchisee NEVER looks to Box 9 of the CSBFP loan application form (Projected Sales ) as the source of their trouble; where the lie is put into the “Liars’ Loan”. The proceeds of these engineered-to-fail loans is split upfront by the franchise banker with the bank, banker, franchisor and sales agent. If questioned, the bank shreds the paperwork and waits for the lawsuit.
And, seriously, how many of these Immigrants as prey losers could or would ever sue a Schedule 1 chartered bank?
The Return: Smashing quarterly earnings goals, record profits, high turnover in the small business division of each of the banks, and making franchise lending the most lucrative form of commercial lending in Canada. Private gain/public loss enabled by a criminogenic environment, moral hazard, regulatory capture…
Lorinc carefully mentions the “windfall profits” in this arrangement of churning:
What’s more, some banks and franchisors have put the SBLA program [predecessor government guaranteed loan program] to questionable use during foreclosure actions against franchisees, says one former owner who has been through the process. When a bank calls a loan against a non-performing franchisee, the 90% guarantee effectively relieves the bank’s receiver from trying to get the best possible value while disposing of the owner’s assets. With most of the loan covered by the Canadian taxpayer, the assets – fixtures, kitchen equipment, inventory, etc. – can be sold quickly at a deep discount, possibly below market value. This allows the franchisor too step in and buy back the property at better-than-firesale prices, thus generating a windfall profit when the store is later re-sold to another franchisee.
An important work that, depressingly, is as relevant in 2012 as it was in 1995.
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A clever animation that mentions Subway but is universal.
Spot on for the United States and fundamentally accurate for Canada and any other country.
See Little Caesars: Ist U.S. discount program Imported for Canadian military veterans, January 2009 post on FranchiseFool.com.
Cross posted on FranchiseBanker.ca.
From Shane D. Gosdis at the franchiselawblog.net, on December 8, 2011 (Franchisees Sue Matco Tools and TD Bank Alleging Loan Fraud Scheme):
The plaintiffs allege that Matco Tools and TD Bank “in a loan fraud scheme to encourage unsophisticated borrowers to enter into risky business loans to buy Matco Tools franchises.” According to the plaintiffs, the “scheme enabled Matco to sell more franchises and TD Bank to make risky loans without concern” because the “bank knew if the loans failed, the loans would ultimately be repaid by the United States taxpayers through the SBA guaranteed loan program.”
Copy of Verified Complaint and Jury Demand (download, 24 page pdf)
Moving attorney estimates a class action suit involving “between 150-to-200 plaintiffs” stretching back until at least 2004.
Other coverage:
Cross-posted on FranchiseBanker.ca