What acknowledgement must a Baya Bar franchisee obtain from a lender when granting a security interest?
Baya_Bar Franchise · 2024 FDDAnswer from 2024 FDD Document
- 16.9 Security Interests to Lender. If Franchisee is in full compliance with this Agreement, Franchisee may pledge or give a security interest in Franchisee's interest in the assets of the Franchised Business to a lender of the funds needed by Franchisee for Franchisee's initial investment, provided that the security interest is subordinate to Franchisee's obligations to Franchisor, that a foreclosure on such a pledge or security interest and/or any Transfer resulting from such a foreclosure shall be subject to all provisions of this Agreement, and that Franchisee obtains from the lender a written acknowledgement to Franchisor of these restrictions. Notwithstanding the foregoing, in the event Franchisee obtains financing whereby funding is provided with the assistance of the United States Small Business Administration ("SBA Financing"), Franchisee shall be permitted to grant the lender of such SBA Financing a senior lien on any collateral Franchisee uses to secure the SBA Financing, and Franchisor agrees to (i) subordinate its interest in any lien on Franchisee's collateral to that of the lender of the SBA Financing and (ii) waive the requirement of the written acknowledgement referenced in this Section.
Source: Item 22 — CONTRACTS (FDD page 56)
What This Means (2024 FDD)
According to Baya Bar's 2024 Franchise Disclosure Document, a franchisee may pledge or give a security interest in the assets of their franchised business to a lender for funds needed for their initial investment. However, the security interest must be subordinate to the franchisee's obligations to Baya Bar. Additionally, any foreclosure on the security interest or transfer resulting from it is subject to all provisions of the Franchise Agreement.
To comply with these conditions, the franchisee must obtain a written acknowledgement from the lender to Baya Bar regarding these restrictions. This written acknowledgement serves to ensure that the lender is aware of and agrees to the terms and conditions of the franchise agreement, particularly those related to the security interest and potential transfer of the franchise.
An exception exists when the franchisee obtains financing with the assistance of the United States Small Business Administration (SBA). In such cases, Baya Bar agrees to allow the lender of the SBA financing to have a senior lien on any collateral used to secure the SBA financing. Furthermore, Baya Bar will subordinate its interest in any lien on the franchisee's collateral to that of the SBA lender and waive the requirement for a written acknowledgement.