Congressman Ellison’s Franchise Legislation: Harmful and Unnecessary

By Elizabeth Taylor, Vice President of Federal Government Relations & Public Policy, Counsel

Congressman Keith Ellison (D-MN-05) recently introduced the SBA Franchise Loan Disclosure Act of 2015 (H.R. 3195). He claims the bill will help small business franchise owners by adding transparency to the process of applying for Small Business Administration (SBA) guaranteed loans. In fact, the legislation will harm small businesses. Chock full of unnecessary regulations, the measure unfairly targets franchise loans and would deter small business growth and job creation.

Franchising is flourishing. There are currently more than 780,000 franchise businesses throughout the U.S. in over 300 different industries ranging from restaurants to in-home healthcare.  Franchising allows thousands of entrepreneurs to become small business owners, and supports 8.9 million jobs nationwide. Franchise growth has outpaced the growth of other small businesses for the past 5 years and the trend is expected to continue.

Franchisees aren’t just successful — they’re also satisfied.  A recent survey of franchisees published by the Franchise Business Review found that 80 percent would rate their franchisors highly and recommend their brand to others. Three-fourths of franchisees would “do it all over again.”

This is why imposing additional red tape on franchises would serve only to stifle business creation and employment opportunities for many Americans. The Ellison bill singles out franchise businesses by imposing burdens on the franchise loan process – even though franchise businesses account for only 6 percent of the SBA 7(a) loan portfolio. There is no evidence that franchise loan failure rates are significantly higher than other businesses.  In fact, according to a recent SBA loan study by FRANdata, franchise small business are less likely to default on their SBA loans than non-franchise businesses.  The default rate for franchise loans is 13.73 percent compared to 17.11 percent among non-franchise loans. In other words, the franchise loan default rate is 20 percent lower than non-franchise loans.

While defaults in business loans are unfortunate, they happen in all types of of businesses, not just franchising. The SBA 7(a) loan program has been overwhelmingly beneficial for franchise small business owners and the overall economy. Six out of seven franchises that receive SBA loans do not default and actually go on to grow their businesses.

For the relatively small percentage of franchise brands that do default, this legislation would be of no assistance. What’s more, singling out one or two franchise brands would be misguided. To the extent any problem can be identified, it would be with larger lenders. Big lenders like Banco Popular have a 40 percent default rate for franchise and non-franchise loans.  This rate is twice the average rate (16.8%) of the top 50 SBA lenders.

The Ellison bill would also create a conflict between two agencies, the SBA and the Federal Trade Commission because it would require changes to the FTC Franchise Rule. Although many franchisors disclose financial performance data to potential franchisees, the franchise rule does not require financial performance disclosure by the franchisor.  That would have to change under the Ellison bill, and the FTC no doubt would fight the alteration.

Mr. Ellison has a history of taking policy positions that would harm small businesses. It’s curious that a lawmaker with such a record would now take an interest in the arcane process of SBA loans for franchisees. Mr. Ellison does have one link to franchising – his largest campaign contributor has been the Service Employees International Union, which is on a well-documented mission to destroy the franchise business model. Perhaps the true motivation behind the Ellison bill isn’t to help franchising but to prevent more franchise small businesses from opening at all.

Franchising Poised for Robust Growth in 2014

Franchise businesses continue to power up the U.S. economy and two just-released reports explain why.

FRANdata’s The Small Business Lending Matrix & Analysis finds that the industry’s perennial lending shortfall – the difference between projected loan demand and loan supply – will likely be cut in half this year, positioning the franchise industry for robust growth. IHS Global Insight’s Franchise Business Outlook reports that franchise industry growth has outperformed the overall economy for the past six years. Both reports are prepared for the International Franchise Association Educational Foundation.

“With seven out of 10 franchise business lines adding jobs faster than the private sector at-large, the franchise business model continues to provide jobs and entrepreneurship opportunities for workers and entrepreneurs in sectors as diverse as hotels, auto, business and personal services and restaurants,” said IFA Pres. & CEO Steve Caldeira, CFE.  “One reason for this success is that credit is steadily becoming more available for franchise expansion.”

Here are a few key findings:

  • Franchise demand from both new and existing franchisees is expected to exceed 73,800 unit transactions in 2014. This represents a 12.4 percent increase in demand over 2013 and an 18.8 percent increase over 2012. (FRANdata)
  • To satisfy this demand, franchise businesses will require $29.4 billion in lending. Of this demand, banks will make $28.1 billion available. These funds will provide financing for 70,500 unit transactions, which will create or maintain more than 1 million jobs and support $138 billion of annualized economic output. (FRANdata)
  • Franchise employment is expected to increase by 2.6 percent in 2014, faster than the 2.5 percent growth in 2013 and outpacing projected total employment growth in the United States by 0.8 percentage points. (IHS Global Insight)

Franchises are expected to add 221,000 new jobs in 2014. Moreover, with 2.6 percent employment growth, franchises are adding jobs faster in 2014 than 2013 and outpacing projected total employment growth in the United States by 0.8 percentage points. (IHS Global Insight).

Find an updated Economic Outlook Infographic and release for more details.

House Panel Passes Six Business Tax Provisions

Today, the House Committee on Ways and Means held its first markup of tax legislation in several years to consider six separate pieces of legislation.  All six bills would make certain expired or expiring tax provisions permanent, including tax incentives important to businesses of all sizes.    Although the votes on the measures were mainly party-line votes, these measures (frequently called “tax extenders”) are among many that lawmakers from both parties have been supportive of in the past to boost economic growth and development, especially among small businesses.

One bill, H.R. 4457, would permanently extend the limit on Section 179 small business expense write-offs to $500,000.  Since the previous tax extender expired at the end of 2013, the current write-off is only $25,000.  This provision, which the Committee approved by a 21-14 vote, is among the most important tax extenders for franchise small businesses, and IFA has consistently advocated for its inclusion in tax extenders packages proposed in recent years.

Another measure, known as the “CFC look through” rule, addresses the treatment of payments between related controlled foreign corporations, and allows multinational companies to more easily move money between foreign subsidiaries.  The Committee passed this measure by a vote of 22-14.  A third bill, which passed by a vote of 21-13, addresses the tax implications of companies converting to Subchapter S, or “pass-through,” tax status.  The Joint Committee on Taxation (JCT) estimates that the six measures will cost a combined $310 billion over a 10-year period.

Franchisers, Lenders Huddle at Denver Lending Boot Camp

On Tuesday, the IFA, the Denver Franchise Business Network (FBN), Faegre Baker Daniels LLP and FRANdata hosted a Franchise Lending Boot Camp in Denver to educate franchise leaders and lenders on the ways to increase small business lending in the recovering economy.  According to the Small Business Lending Matrix & Analysis, Vol. 5, produced for IFA by FRANdata in April, lending to America’s franchise businesses will reach $23.9 billion in 2013, the highest level since the recession, yet will still fall short of demand.  Access to capital has remained an important issue for franchise owners throughout the recovery.


Stephen Olear, Chief Franchise Council in the Los Angeles office of the U.S. Small Business Administration (SBA), addressed attendees on ways the SBA is working to increase lending to small businesses in general and franchises specifically.  Because of the unique partnerships between franchisors and franchisees, and the stability the franchise model provides, franchise owners generally make good loan candidates.  Olear announced that a new pilot program has launched this year to pre-approve more franchises for SBA-guaranteed loans by making updates to SBA procedures and to the SBA Franchise Registry.  Edith Wiseman, Exec. VP of Client Solutions at FRANdata, spoke about the registry and its role in helping connect franchises and lenders.


Steve Olear of the U.S. Small Business Administration addresses Franchise Lending Boot Camp participants in Denver.

A group of franchisors engaged in a panel discussion entitled: “How We Get Our Franchisees Financed.”  Panelists included Greg Esgar of Massage Envy, Rachel Williams of Mrs. Fields Famous Brands, and Reginald Heard of Focus Brands.  The franchise executives discussed strategies for making their franchisees more loan-ready, and their efforts to help franchisees secure financing during the depths of the recent recession.


Following the presentation from the franchisors, a group of lenders shared their insights on what makes great financing candidates, and how businesses can better prepare themselves to apply for financing.  Among the lending panelists were Julie Huston of U.S. Bank, Dave Otteson of BBVA Compass, and Ken Allen of Evolve Bank & Trust.


Attendees later gathered for a reception and dinner at the Denver Country Club, where participants mingled and shared what they learned.  Olear again addressed the group to review the progress that has been made in the past few years on increasing lending to small businesses, and applauded the collaboration of the franchise and banking industries in their hard work to improve the lending environment for all.

IFA SmartBrief Brings Franchising’s Story to Life

Eager to learn what is affecting franchise businesses in legislative, policy,
marketing and economic areas? Three times a week, those following the franchise industry can get the latest news in IFA’s news bulletin, IFA SmartBrief. Published every Monday, Wednesday and Friday, it includes such categories as franchise news, best practices and business leadership, news from IFA, trends watch and a policy and finance update.

With a circulation of 25,000, the brief provides tips to help better operate
your franchise business, as well as share the activities IFA is conducting on Capitol Hill to promote the industry and counter policies and regulations that would stifle franchise businesses in their local communities.

The brief, easy-to-ready summaries spotlight what your peers and competitors are doing to expand, update or rebuild their brands. There are many media sources and include major media such as the Wall Street Journal and Los Angeles Times, trade publications include QSR and Adweek and broadcast outlets such as FOX Business News and CNBC. Articles provide tips on taking advantage of social media, improving your credit, listening to customer feedback and more.

Not yet signed up for this free resource?  Visit and select SmartBrief under “Resources.”