Why is the interest rate paid by Chesters franchisees lower than the interest rate earned by Ascentium?
Chesters Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisees will pay fixed monthly payments of principal and interest accruing on the loan. Interest rates will be fixed at the time the loan is funded based on factors including length of term, loan amount, Ascentium's cost of funds, your credit history and operating history, and other relevant risk factors. These factors will also be considered in setting your monthly loan payment amount. As of the issuance date of this disclosure document, the rate of interest you will pay on each loan from Ascentium is approximately 4.99% per annum, but Ascentium will actually earn an annual interest rate of approximately 8.50% on each loan because Ascentium will deduct an amount equal to approximately 5% to 10% of the total purchase price for the core equipment, signage, fixtures, and supplies from the amount paid to us as part of our agreement with Ascentium to reduce your annual interest rate from 8.50% to 4.99%, as adjusted from time to time. The interest rate available to franchisees on Ascentium loans may vary over time. We do not receive any fees from Ascentium for referring our franchisees to Ascentium for financing, but as noted above and in Item 10 the total purchase price you pay to us for the core equipment, signage, fixtures, and supplies will be approximately 5% to 10% higher than if you pay us cash or finance through a different third party.
Source: Item 10 — FINANCING (FDD pages 23–24)
What This Means (2025 FDD)
According to Chesters's 2025 Franchise Disclosure Document, the interest rate paid by franchisees to Ascentium Capital is lower than the actual interest rate earned by Ascentium due to a specific arrangement between Chesters and Ascentium. While franchisees may see an interest rate of approximately 4.99% per annum, Ascentium earns approximately 8.50% annually on these loans.
The difference arises because Ascentium deducts 5% to 10% of the total purchase price for core equipment, signage, fixtures, and supplies from the amount paid to Chesters. This deduction effectively reduces the franchisee's interest rate from 8.50% to the stated 4.99%. In essence, Chesters is subsidizing part of the franchisee's interest payment through this arrangement with Ascentium.
This arrangement benefits Chesters by potentially making financing more attractive to franchisees, encouraging them to purchase equipment and supplies through the franchisor-approved channels. However, the FDD also notes that the total purchase price franchisees pay to Chesters for these items will be approximately 5% to 10% higher than if they paid cash or financed through a different third party. Therefore, franchisees should carefully evaluate all financing options and consider whether the lower interest rate outweighs the potentially higher overall cost of equipment and supplies when using Ascentium financing.