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.

International Toolkit Webinar: Drafting and Negotiating an International Franchise Agreement


The second webinar in IFA’s International Toolkit series is “Drafting and Negotiating an International Franchise Agreement”, presented by Ned Levitt, Partner, Dickinson Wright.  The webinar will take place Thursday August 20th from 11 to noon, ET. Levitt offers the following description of the webinar:

Like the siren’s song, many a franchisor has become intoxicated with the idea of expanding internationally, only to end up crushed on rocky foreign shores, with little to show for the experience but a new found wisdom. Learning the best practices in drafting and negotiating an international franchise agreement can go a long way to increasing a franchisor’s success in international markets. This exercise is one part technical, one part art and one part hard work.

This webinar will cover such crucial issues as:

  • What preliminary steps need to be taken?
  • Which countries and when?
  • How to choose the most appropriate franchise structure.
  • The value of letters of intent and how to prepare them.
  • The critical deal points and drafting options.
  • What is safely negotiable and how to settle the final document.
  • The role of foreign counsel.

Click here to register now!

Business Leaders Urge Senate to Restore Full-Time Work Week

By Kevin Serafino

As the U.S. Senate prepares to adjourn for its August recess, business leaders and employers from across the country are urging their elected officials to consider a critical change to the Affordable Care Act (ACA) that would restore the 40-hour full-time work week and put more pay in the pockets of American workers.

Yesterday, members of the More Time For Full Time coalition, led by the International Franchise Association and including more than 400 business trade associations from all 50 states, sent a letter to Senate Majority Leader Mitch McConnell and Democratic Leader Harry Reid pressing them to consider S.B. 30, the Forty Hours Is Full Time Act, upon their return to Washington in September. The legislation would harmonize the definition of full-time employment in the ACA with the traditional 40 hours per week definition, benefiting employees by allowing for more hours and income and helping employers by removing a burdensome new regulation.

Under the ACA’s current definition of full-time employee, set at 30 hours per week, many employees are being hurt by lost wages and hours because this new standard makes it more expensive for employers to allow part-time employees to work more than 30 hours through picking up additional shifts and adding flexibility to their schedules.

The Forty Hours Is Full Time Act currently has 42 co-sponsors in the Senate, while 73 Senators have indicated their belief in restoring the 40-hour work week.  Franchise business owners will meet with their elected officials at home throughout the Congressional recess to advocate for policies that will allow their businesses to thrive and create jobs in their local communities.

To read the More Time For Full Time coalition’s letter to Senate leadership, click here.  To contact your elected officials and urge them to restore the 40-hour work week, click here.

IFA Joins 50-100 Coalition to Protect Small Business Owners from ACA Mandate

The Supreme Court has upheld the Affordable Care Act (ACA), but small business owners across the U.S. are still struggling to deal with its ramifications. The ACA is full of one-size-fits-all mandates that continue to wreak havoc on day-to-day operations of many small businesses. Employers want to provide good healthcare coverage to their employees, but they must to do so in a cost effective way. The ACA has made that harder to achieve. These businesses need relief.

That’s why IFA has joined forces with several other employer organizations to form the 50-100 Coalition. The Coalition is supporting efforts in Congress to protect businesses from the ACA mandate that requires businesses with between 51 and 100 employees to change their healthcare plans by 2016.

The mandate would disrupt the market and force groups with between 51 and 100 employees to drop the health insurance they currently provide to employees. Many of these businesses already provide have through the large-group market. The ACA mandate would force this group to instead purchase coverage through the small-group market. This is unnecessary and won’t guarantee better coverage for anyone.

The 50-100 Coalition is standing behind compromise legislation that would reverse this mandate. The Protecting Affordable Coverage for Employees Act (The PACE Act), which enjoys bipartisan support, would preserve the current definition of a small-market group as 1-50 employees and at the same time give states the flexibility to alter that definition if the need arises. This is a much better approach.

Federal mandates like this ultimately lead to fewer choices and higher costs for consumers. Employers will continue to pursue solutions that protect their employees from government overreach, particularly when it impacts the very personal subject of their healthcare.

5 Reasons to Attend IFA’s Franchise Action Network Annual Meeting

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The most important advocacy event of the year, the Franchise Action Network Annual Meeting (formerly the Public Affairs Conference), is coming to Washington, DC this September 29-30. Here are 5 reasons why YOU need to be there:

1. You CAN make a difference.

Issues like the new joint employer standard can drastically affect your business, and members of Congress need to know why. Attend this event and you’ll have the opportunity to meet directly with your representatives to express the consequences of a new joint employer standard. We need to come together at this critical time-if we don’t do something now, the franchise industry will be in jeopardy. Click here to find out what can happen to your business if this were to take effect.

IFA will prep you before your meeting, and this year we will have Soapbox Consulting here to provide even more guidance on having an effective visit through a professional advocacy training panel during the program! They will also schedule all of your appointments on Capitol Hill. Also, expect to hear from the Soapbox team to discuss your meetings after you register to make the most of your day on the Hill!

2. Network with your peers.

There will be several opportunities for you to form new relationships and see familiar faces during this event. Join us for the Franchisee Meet & Greet, Tuesday, Sept. 29 from 5:30 pm-6:15 pm. You also won’t want to miss our closing event, the Congressional Reception, Wednesday, Sept. 30 from 5:30 pm-8:30 pm. This will take place on the rooftop terrace of Charlie Palmer’s, and you can mix and mingle with your peers and members of Congress while overlooking Capitol Hill! Also, new in 2015, is the Franchising Gives Back Celebration & Annual Awards Dinner (separate fee required) on Monday, Sept. 28 at 7:00 pm – click here for more information.

3. Celebrate franchising.

The Leadership & Franchisee of the Year Awards Dinner on Tuesday, Sept. 29 recognizes outstanding franchisees and leaders among their industry peers. Franchisors: nominate a franchisee today by clicking here. Nominations are due by August 21.

4. Be an informed advocate for franchising.

Our members are the best voices for our industry. Getting involved in IFA’s advocacy efforts during the Franchise Action Network Annual Meeting will help drive our effectiveness on Capitol Hill and within state legislatures all year round. IFA will make sure you are equipped with the most up-to-date information about issues that affect your business so you can help save the franchise business model and protect your livelihood.

5. The Franchisee Growth Conference.

New in 2015 – the Franchisee Growth Conference will be held in conjunction with the Franchise Action Network Annual Meeting! It takes place at the Ronald Reagan Building & International Trade Center, right across from the JW Marriott in Washington, DC, from Sept. 28-29. This conference will feature programming specific to the needs of franchisees that you help you learn the latest innovations and best practices to evolve your business. Attend both the Franchise Action Network Annual Meeting and the Franchisee Growth Conference to take advantage of registration discounts. For more details, click here.


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