Does the rule of 78 apply to Canopy Lawn Care's financing?
Canopy_Lawn_Care Franchise · 2025 FDDAnswer from 2025 FDD Document
There is no prepayment penalty and the rule of 78 does not apply (the rule of 78 is a method of computing interest which requires the interest originally calculated to still be paid even if prepaid). No security interest is required and no person other than you and, if you are an entity, those individuals who are required to sign the form Guarantee and Assumption of Obligations attached as Attachment B to the Franchise Agreement, must sign the Note.
If we offer and you accept financing from us, and you sign the Note, you will be required to waive and excuse presentment for acceptance and payment, notice of dishonor, and protest of dishonor. Other than as mentioned in the previous sentence, neither the Note, nor any other financing document you sign will contain any waiver of defense or similar provision. In the event payment of the Note is not made under its terms, we may either accept a late payment, together with a late charge equal to 10% of the late payment, or declare the entire balance of the Note immediately due. If the balance of the Note is accelerated, we must give written notice and, if the balance is not paid within 10 days after notice is given, you must pay us interest at the maximum legal rate (not to exceed 18%) and any attorneys' fees and other costs we incur in collecting the monies owed. We also have the right to terminate the Franchise Agreement if we accelerate the Note and the Note is not paid within the 10 days after acceleration. We have not in the past and do not currently intend to sell, assign or discount to any third party the Note or any other financing document you sign.
Source: Item 10 — FINANCING (FDD pages 30–32)
What This Means (2025 FDD)
According to Canopy Lawn Care's 2025 Franchise Disclosure Document, the rule of 78 does not apply to their financing. Canopy Lawn Care may finance up to 80% of the franchise fee for up to 24 months for qualifying existing franchisees. The interest rate will be 4 percentage points above the prime interest rate on the effective date of the Franchise Agreement.
This means that if a franchisee prepays their loan, they will not be required to pay the interest that was originally calculated, which is a benefit to the franchisee. The document specifies that there is no prepayment penalty. This is favorable for franchisees, as the rule of 78 is a method of computing interest which requires the interest originally calculated to still be paid even if prepaid.
Canopy Lawn Care also states that no security interest is required, and no person other than the franchisee and any individuals required to sign the Guarantee and Assumption of Obligations must sign the Promissory Note. If payment of the note is not made under its terms, Canopy Lawn Care may either accept a late payment, together with a late charge equal to 10% of the late payment, or declare the entire balance of the Note immediately due. If the balance of the Note is accelerated, Canopy Lawn Care must give written notice, and if the balance is not paid within 10 days after notice is given, the franchisee must pay interest at the maximum legal rate (not to exceed 18%) and any attorneys' fees and other costs incurred in collecting the monies owed. Canopy Lawn Care also has the right to terminate the Franchise Agreement if they accelerate the Note and the Note is not paid within the 10 days after acceleration.