Are accounts receivable included as security when financing an Aunt Millies Bakeries franchise fee?
Aunt_Millies_Bakeries Franchise · 2025 FDDAnswer from 2025 FDD Document
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- Security.
- a. Rights under the franchise (Distribution Agreement, §3.7, Financing Security Agreement, § 1 and Form UCC-1 Financing Statement).
- b. All accounts, accounts receivable, contract rights and chattel paper relating to franchise (Financing Security Agreement, §1, and Form UCC-1 Financing Statement).
- c. All equipment, inventory, goods, property and general intangibles relating to the franchise, whether now or hereafter existing or acquired (Financing Security Agreement, §1 and Form UCC-1 Financing Statement).
- d. Any and all accessions, replacements and additions to or of the foregoing (Financing Security Agreement, §1 and Form UCC-1 Financing Statement).
- e. All cash or non-cash proceeds (including insurance proceeds) of the collateral listed above.
Source: Item 10 — FINANCING (FDD pages 21–24)
What This Means (2025 FDD)
According to Aunt Millies Bakeries's 2025 Franchise Disclosure Document, accounts receivable are included as security when financing the franchise fee through First Capital Acceptance Corp. or Distribution Services of America, Inc. For financing up to 90% of the franchise fee through First Capital, the security includes all accounts, accounts receivable, and contract rights relating to the franchise. Similarly, if utilizing the optional financing for the remaining 10% of the initial franchise fee through Distribution Services of America, the security includes all equipment, inventory, accounts receivable, goods, property, contract rights, chattel paper, and general intangibles relating to the franchise.
This means that if a franchisee obtains financing from either First Capital or DSA to cover the franchise fee, Aunt Millies Bakeries has a security interest in the franchisee's accounts receivable. In the event of default, First Capital or DSA can claim these assets to recover the outstanding debt. This is a standard practice in franchising to protect the lender's investment.
Prospective franchisees should carefully consider the implications of granting a security interest in their accounts receivable. It is essential to understand the terms of the financing agreement and the potential consequences of default. Franchisees should also evaluate their ability to manage their finances and meet their obligations under the financing agreement to avoid the risk of losing their accounts receivable and potentially their franchise.