The lie in the government guaranteed loan: inflated future sales and 6 times value on assets (leasehold and equipment).
Predatory franchise lending program
- An unsophisticated CDN buyer is steered by the broker to a specific Schedule 1 banker who can “make the deal happen”.
- Industry Canada application form/logo used as bait, as credibility.
- Loan paperwork is only ever seen by government auditors IF a claim is made.
- 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).
- Deal is papered within 24 hours including compliant appraisal.
- Bank’s money in; franchisee’s money in.
- Money out of franchisee’s current account: a. to franchisor who pays broker and b. bank’s own treasury.
- Sales never show up. Value of franchise on a cash flow basis is negative. Franchisees subsidize and burn through rest of life savings.
- Franchisor manages the inevitable business collapse.
- Bank’s receiver sells assets at 15% of previous value within 18 months to franchisor.
- Consortium repeats steps (go to 1).
- see Andralex Food Services Inc. and Country Style Food Services Inc., Country Style Food Services Holding Inc., Jeff Young, Canadian Imperial Bank of Commerce, Sue Fedorink and Roger Noble