Attorney to SBA: Slap Back Franchisors' Heavy Hand
Here’s another take on the problem of defining a “small” business, for the purpose of obtaining a U.S. Small Business Administration loan—a problem detailed in this blogger’s column in the June/July issue of Franchise Times.
Jeffery Haff, an attorney at Dady & Gardner in Minneapolis, told the SBA it should stay tough in its efforts to be sure small-business loans go only to those businesses that are truly small. Haff represents franchisees, and thinks many franchisors apply far too heavy a hand.
“We see the excessive control over franchisees, dealers and distributors endangers these business owners and renders the idea of an ‘independent small business’ illusory,” he wrote, in response to a request for comment by the SBA.
“Our clients should be able to operate as independent small businesses. They should not be unreasonably prohibited from transferring their businesses for fair market value. They should, generally, be able to collect their own revenues and pay their own expenses,” Haff writes.
Then he gets more specific about a common occurrence in franchising. “They should not reach the expiration date of their agreements and have no choice but to surrender their businesses to the much larger franchisor entity in return for depreciated asset value.”
Haff believes franchisors should not be able to self-certify that their contracts are not excessive and thus their franchisees are eligible for small-business loans, as one group has proposed. Rather, he proposes franchisor counsel should be required, “for each potential excessive control element,” to provide an opinion letter that specifies why contract language complies with the SBA rules.