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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Business or real estate brokers’ role in franchising.

August 30, 2012

A clever animation that mentions Subway but is universal.

Spot on for the United States and fundamentally accurate for Canada and any other country.

  • Nice touch mentioning the veterans’ franchise program scams (VetFran).

See Little Caesars: Ist U.S. discount program Imported for Canadian military veteransJanuary 2009 post on FranchiseFool.com.

Cross posted on FranchiseBanker.ca.

 


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