Franchising more than helps flush +$100 million CDN annually down the toilet

January 4, 2010

A good Canadian Press article called Ottawa’s loan program for small business still troubled: report by Dean Beeby.The revenue paid to Industry Canada was supposed to cover the default claims paid out, but the math has never worked in Ottawa’s favour.

Claims paid out have risen steadily over the decade, and now top $100 million annually, while revenues have consistently lagged, costing taxpayers a net $335 million so far.

Put another way, cost recovery is currently at only about 60 per cent rather than the 100 per cent that was planned, and is in steady decline.

“The gap between claims and fee revenues will continue to exist and most likely expand,” predicts the KPMG report, dated Oct. 30 and obtained by The Canadian Press under the Access to Information Act.

The program’s portfolio of loans has become ever more risky over the decade, now catering especially to newly established small firms with weak credit scores and little collateral, many in the food-and-beverage sector.

These loans are used extensively in franchising although the franchise bankers frequently don’t even bother to try to register or make a claim on the phantom loans. The difference between new and used equipment nicely covers the money split between the mob (see here for details).

I’ve kept a close eye on the Canada Small Business Financing program and how the franchise industry misuses it (see my 2005 paper called Franchising Opportunism)

Program results from 1999 to 2008 using Industry Canada’s own Annual Reports (franchised v. non-franchised loans):

  • Franchise Loan Claim Rate was 26.5% higher (than for Non-franchised loans).
  • Franchise Loan Default Rates resulted in over $22.9-million more Claims (Non-franchised rate).
  • The mean Franchised loan was 43.4% higher than Non-Franchised.
  • The mean Franchised claim was 11.9% higher than Non-Franchised.

Comparing the years 2008 to 1999:

  • The Claim Rate increased 858.2 times for Franchised (245.1  times for Non-franchised loans).
  • The Franchised Claim Rate accelerated 3.5 times more than Non-franchised loans.

I’d be happy to send anyone the spreadsheet.

The U.S. Small Business Administration’s 7a. loan program seems to be sticking their citizens with a $70-83-billion public debt, too.

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Criminal groups threatening capital markets, RCMP

December 8, 2008

fattonyDean Beeby, The Canadian Press and The Globe and Mail have an interesting article today, Criminal groups threatening capital markets, RCMP.

OTTAWA — Organized crime has become a significant threat to Canada’s capital markets, a new report from the RCMP’s fraud squads says.

Major crime groups are recruiting investment professionals to help them move far beyond traditional activities – smuggling, extortion and counterfeiting – into the rarefied world of high finance and market manipulation, the Mounties say.

“Using the markets requires a degree of knowledge and expertise,” says the draft report from the RCMP‘s Integrated Market Enforcement Teams, or IMETs.

“Organized crime groups harness this skill set by using professional facilitators in the industry.

“The facilitators’ subjective knowledge of the true nature of these schemes ranges from willful blindness to direct fraudulent participation.”

This has hypothetical interest only since franchising is essentially a capital exchange mechanism. Further:

Organized crime and “criminalized professionals” – rogue investment specialists – are described as the two main players in financial crimes.

Criminalized professionals? They mean the crooked investment dealers, right? Right?

The Canadian Bar Association is ferocious in protecting any tiny little-weeny, tensy attempt to limit its members’ airtight solicitor-client privilege.

This of course (again in only the most-twisted imaginations possible) creates and maintains a safe haven for the buying and selling of legal services that enable international organized crime.

  • Fat Tony and his counsel have nothing to fear from any hoser.

It’s taken Canada years to develop its reputation as the world’s best place for white-collar crime:

  1. no national regulator (take our OSC…please),
  2. no securities investigations (Lord Black, Nortel, Livent…),
  3. amnesiac centralized commercial bankers.
  4. oh the list goes on and on.

A farce, really.  In summary, just go ask Al Rosen why he doesn’t invest in CDN listed stocks.


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