Does the Circle K franchisor have the discretion to pay suppliers directly with the proceeds of any Funding?
Circle_K Franchise · 2025 FDDAnswer from 2025 FDD Document
7.6 Equipment/Construction and Other Funding. Franchisor may offer to Franchisee funding for acquisition of certain Store equipment and/or construction of the Store ("Equipment/Construction Funding") if Franchisee qualifies for same. If Franchisee accepts the Equipment/Construction Funding, Franchisee must sign the Equipment/Construction Funding Agreement attached hereto as Exhibit 4 (the "Equipment/Construction Funding Agreement") and the Personal Guaranty (attached hereto as Exhibit 5). Franchisor will use the Equipment/Construction Funding funds, on Franchisee's behalf, to off-set the acquisition cost of Store equipment and the construction cost of the Store, and pay related invoices on Franchisee's behalf. The Equipment/Construction Funding will be amortized over the Term. Schedule A to the Equipment/Construction Funding Agreement sets forth the options available to Franchisee with respect to Equipment/Construction Funding. The amount of Equipment/Construction Funding, if any, that Franchisee is approved to receive will be noted on the Data Sheet. If, subsequent to the parties' execution of the Equipment/Construction Funding Agreement but before the store is deemed open as a Circle K Store hereunder, the merchandise sales levels at the store drop below the levels that Franchisor used to set the Equipment/Construction Funding amount, Franchisor reserves the right to reduce the Equipment/Construction Funding amount accordingly.
Source: Item 22 — CONTRACTS (FDD page 100)
What This Means (2025 FDD)
According to Circle K's 2025 Franchise Disclosure Document, the franchisor has the discretion to use Equipment/Construction Funding to pay suppliers directly on behalf of the franchisee. Specifically, if a franchisee qualifies for and accepts Equipment/Construction Funding, Circle K will use these funds to offset the acquisition cost of store equipment and the construction costs, paying related invoices on the franchisee's behalf. This funding is then amortized over the term of the agreement.
This arrangement benefits the franchisee by simplifying the payment process for significant store-related expenses. Instead of the franchisee managing payments to various suppliers and contractors, Circle K handles these transactions directly, streamlining the setup or renovation process. This can be particularly helpful for new franchisees who may lack experience in managing construction or equipment procurement.
However, it's important to note that the amount of Equipment/Construction Funding a franchisee is approved to receive will be noted on the Data Sheet, and Circle K reserves the right to reduce the funding amount if merchandise sales levels drop below the levels used to set the funding amount before the store opens as a Circle K. This condition introduces a risk for franchisees if projected sales are not met, potentially requiring them to cover a larger portion of the costs themselves. Franchisees should carefully review the terms of the Equipment/Construction Funding Agreement and understand the conditions under which the funding amount can be adjusted.
Overall, the direct payment of suppliers by Circle K using Equipment/Construction Funding provides a convenient and potentially beneficial arrangement for franchisees, but it also carries the responsibility of maintaining projected sales levels to avoid funding reductions.