Is the Incentive offered by Embassy Suites By Hilton considered a loan?
Embassy_Suites_By_Hilton Franchise · 2025 FDDAnswer from 2025 FDD Document
ct since we granted approval; (b) you have completed any required PIP; and (c) you have paid the Franchise Application Fee.
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. We may reduce the amount of the Incentive that we disburse to you by any amount that you or your affiliates owe to us or our affiliates, and this will not affect the calculation of the amount repayable to us. We may grant renewals, extensions, modifications, compositions, compromises, releases or discharges of other parties without notice to any guarantor or co-maker. You may not use any portion of the Incentive to make, offer, or authorize any Improper Payment or engage in any act violating any Anti-Corruption Law. If we reasonably believe that you have used the Incentive in violation of any Anti-Corruption Law, you must cooperate with our reasonable requests for information and permit us to inspect all books and records pertaining to your Hotel.
We generally do not offer any other financing or guarantee any note, lease, or other obligations. However, in unique or rare circumstances we may choose to offer other types of financing such as, for example, a mezzanine loan or a guaranty of your note, lease, or other obligations. In that event, the arrangements we offer would be based on the unique circumstances and financial situation of your Hotel. As a result, we cannot determine in advance the key terms such as, for example, the amount, term, repayment obligations, interest, fees, costs, penalties, security interests, default provisions, and other conditions or requirements.
Source: Item 10 — FINANCING (FDD pages 52–53)
What This Means (2025 FDD)
According to Embassy Suites By Hilton's 2025 Franchise Disclosure Document, the Incentive offered is explicitly stated not to be a loan. Instead, it is classified as a contingent liability. This means that the franchisee's obligation to repay the Incentive is dependent on certain future events. Specifically, if the franchise terminates before the end of its term, the franchisee must repay the then-current repayable amount of the Incentive. Similarly, if the franchisee transfers the hotel, repayment is required unless Embassy Suites By Hilton permits the transferee to assume the obligations under the development incentive note.
The repayable amount of the Incentive decreases over time, reducing annually by an equal percentage of the term. For instance, with a 10-year franchise term, the repayable amount decreases by 1/10th each year, while a 20-year term sees a 1/20th reduction annually. Notably, the Incentive does not accrue interest. However, if repayment is triggered and not made on time, the outstanding amount is subject to interest at a rate of 1.5% per month, or the highest rate allowed by law.
Embassy Suites By Hilton may reduce the Incentive disbursed by any amounts owed to them or their affiliates, without affecting the repayable amount calculation. The document also states that Embassy Suites By Hilton generally does not offer direct or indirect financing for franchisees, apart from the described development incentive program, which they may modify or terminate at any time. In unique circumstances, Embassy Suites By Hilton may offer other types of financing, such as a mezzanine loan or a guaranty, but the terms would be determined based on the specific situation of the hotel.