Does the Bhc franchise agreement allow for exceptions regarding third-party beneficiaries, and if so, under what conditions?
Bhc Franchise · 2025 FDDAnswer from 2025 FDD Document
- (d) Franchisee does not have a right to pledge, encumber, hypothecate or otherwise give any third party a security interest in this Agreement in any manner whatsoever (except that with Franchisor's consent, which will not be unreasonably withheld, Franchisee may pledge a security interest in this Agreement in connection with a Small Business Administration loan), nor sub franchise or otherwise transfer, or attempt to sub franchise or otherwise transfer the Franchised Business, or to transfer or sub franchise a portion but not all of Franchisee's rights hereunder without Franchisor's express prior written consent, which may be withheld for any reason in Franchisor's sole discretion.
Source: Item 23 — Receipts (FDD pages 52–230)
What This Means (2025 FDD)
According to Bhc's 2025 Franchise Disclosure Document, the franchise agreement generally restricts franchisees from granting security interests to third parties. However, an exception exists if the franchisee obtains Bhc's consent, which Bhc will not unreasonably withhold, to pledge a security interest in the agreement in connection with a Small Business Administration (SBA) loan.
This means that while franchisees cannot typically use the franchise agreement as collateral for loans or other financial arrangements with third parties, Bhc may allow it for SBA loans. This provision protects Bhc by ensuring that the franchise agreement isn't easily encumbered, which could complicate the brand's operations if the franchisee defaults.
For a prospective Bhc franchisee, this is a notable exception. If seeking an SBA loan to finance the franchise, the franchisee has a pathway to use the franchise agreement as collateral, provided Bhc consents. This can be a significant benefit, as SBA loans often have favorable terms for small businesses. However, it's crucial to secure Bhc's consent before making any such arrangements to avoid violating the franchise agreement.