What collateral secures the notes receivable from Bath Tune Up franchisees?
Bath_Tune_Up Franchise · 2025 FDDAnswer from 2025 FDD Document
urns filed by the Ultimate Parent. As such, the Company does not record a provision for federal or state income taxes for financial reporting purposes.
3. NOTES RECEIVABLE, NET
Notes receivables are due from certain franchisees primarily related to financing initial franchise fees and are collateralized by the franchise territory. The notes typically bear interest at rates ranging from 5% to 10% with original maturities ranging from one to five years. A summary of notes receivable expected maturities, less allowance for credit losses is as follows:
| --------------------------- | -- | -- |
|---|
| 2025 | $ 741,503 |
|---|---|
| 2026 | 526,618 |
| 2027 | 268,377 |
| 2028 | 132,950 |
| 2029 | 56,472 |
| Thereafter |
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 51–52)
What This Means (2025 FDD)
According to Bath Tune Up's 2025 Franchise Disclosure Document, notes receivable are primarily related to financing initial franchise fees and are secured by the franchise territory. This means that if a franchisee takes out a loan from Bath Tune Up to cover the initial franchise fee and subsequently defaults on that loan, Bath Tune Up has a legal claim to the franchisee's territory. This arrangement protects Bath Tune Up's financial interests in the event of franchisee loan defaults.
These notes typically bear interest at rates ranging from 5% to 10%, with original maturities ranging from one to five years. This indicates the terms under which Bath Tune Up provides financing to its franchisees, including the interest charged and the repayment period. The interest income earned on these promissory notes was $110,014 and $108,959 for the years ended December 31, 2024 and 2023, respectively.
In the event that Bath Tune Up determines that certain balances are uncollectible, the company will discontinue recognition of interest income related to financing receivables. Interest income on these notes is accrued using the simple interest method. This indicates that Bath Tune Up has a process for managing and accounting for potential credit losses on the notes receivable from franchisees.