Is the Embassy Suites Incentive considered a loan?
Embassy_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
An Incentive is not a loan, it is a contingent liability. If your franchise terminates before the end of the Term you must pay us the then-current repayable amount of the Incentive. If you transfer your Hotel you must also pay us the then-current repayable amount of the Incentive, unless we permit the transferee to assume your obligations under the Note. In that case we may require the transferee to provide us with such additional security as we deem appropriate. The repayable amount of the Incentive decreases over time. For each year that the Hotel is open, the repayable amount is reduced by an equal annual percentage of the Term. For example, if the franchise has a 10-year Term, the repayable amount is reduced by 1/10th of the original amount annually. If the franchise has a 20-year term, the repayable amount is reduced by 1/20th of the original amount
annually. An Incentive bears no interest. However, if an Incentive becomes repayable and payment is not made in full when due, the outstanding amount is subject to interest at 1.5% per month or the highest rate allowed by law.
Source: Item 10 — FINANCING (FDD pages 52–53)
What This Means (2025 FDD)
According to Embassy Suites's 2025 Franchise Disclosure Document, the Incentive offered to new hotel developers is explicitly not a loan but rather a contingent liability. This Incentive is a financial contribution from Embassy Suites to assist with the development or conversion of a hotel. To formalize the Incentive, the franchisee and their principals must sign a development incentive note when they sign the Franchise Agreement.
The key difference between the Incentive and a loan lies in the repayment terms. The Incentive does not have to be repaid unless specific events occur, namely the termination of the franchise before the end of its term or a transfer of the hotel ownership. The repayable amount decreases over time, with an equal annual percentage reduction based on the term length. For instance, a 10-year franchise term reduces the repayable amount by 1/10th annually, while a 20-year term reduces it by 1/20th annually. Furthermore, the Incentive bears no interest unless it becomes repayable and payment is not made when due, at which point interest accrues at 1.5% per month or the highest rate allowed by law.
This structure offers a potential benefit to franchisees as it provides financial assistance without the immediate burden of loan repayments. However, franchisees should be aware that the Incentive becomes a liability if they terminate the agreement early or transfer ownership, requiring them to repay the outstanding amount. Additionally, Embassy Suites may reduce the Incentive disbursement by any amount the franchisee or their affiliates owe to them, which will not affect the calculation of the amount repayable. Franchisees should also note that they cannot use any portion of the Incentive to make, offer, or authorize any Improper Payment or engage in any act violating any Anti-Corruption Law.