Liar Loans deals: business brokers and specialized franchise bankers

September 27, 2012

The lie in the government guaranteed loan: inflated future sales and 6 times value on assets (leasehold and equipment).

Predatory franchise lending program

  1. An unsophisticated CDN buyer is steered by the broker to a specific Schedule 1 banker who can “make the deal happen”.
  2. Industry Canada application form/logo used as bait, as credibility.
  3. Loan paperwork is only ever seen by government auditors IF a claim is made.
  4. Liar loans are never claimed as a loss to Industry Canada (above 3% interest, admin fees, $ above real value more than make up for reckless underwriting).
  5. Deal is papered within 24 hours including compliant appraisal.
  6. Bank’s money in; franchisee’s money in.
  7. Money out of franchisee’s current account: a. to franchisor who pays broker and b. bank’s own treasury.
  8. Sales never show up. Value of franchise on a cash flow basis is negative. Franchisees subsidize and burn through rest of life savings.
  9. Franchisor manages the inevitable business collapse.
  10. Bank’s receiver sells assets at 15% of previous value within 18 months to franchisor.
  11. Consortium repeats steps (go to 1).

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Suing a Bank (2)

April 1, 2008

In 2006, a client brought legal action against a very large Canadian chartered bank, franchisor, sales agents and bank employee.

Click here to download a copy of the Statement of Claim.

In 2005, I wrote a paper called Franchising Opportunism for Industry Canada the administrator of a small business loan program called the Canada Small Business Financing Program.

In this paper, I defined a term called Predatory Franchise Lending as well as explaining the basic mechanism of modern franchising.

Click here to download a free copy of Franchising Opportunism.


Suing a Bank (1)

April 1, 2008

In Nov 2006, Justice D. Brown, an Ontario (Canada) Superior Court of Justice ruled on a pre-trial motion brought by a Canadian chartered bank defendant which is involved in a lawsuit.

The nature of the allegations are:

[1] This action involves claims arising from the failure of a Country Style franchise. Andralex Food Services Inc. (“Andralex”), the franchisee, sues the franchisor, [franchisor], and related companies, a consultant, [salesperson], and the lender of funds to the franchisee, the [bank]. Claims are also asserted against [loan officer], a Senior Small Business Banking Officer with the [bank].

Further…

[2] In its Statement of Claim Andralex advances several types of allegations against the [bank] and [loan officer]

  1. negligence and breach of a duty of care allegedly owed to the plaintiff;
  2. breach of a fiduciary duty allegedly owed to the plaintiff;
  3. negligent misrepresentation, including breaches of the Competition Act; and,
  4. conspiracy with all the other defendants “to use unlawful means directed against the Plaintiff, knowing in the circumstances that the Plaintiff would suffer irreparable harm”…

From what I can understand as a non-lawyer, the bank wanted two things struck from the lawsuit:

  1. the claims against its former employee in her personal capacity; and
  2. the claims of conspiracy against the bank and its employee.

The Justice said yes to #1 but no to #2. The lawsuit continues, I understand.

To download a copy of the Endorsement, click here.


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