What is the alternative calculation for the maximum permissible interest rate that can be charged to a Gokhale Method franchisee in California?

According to the 2024 Gokhale Method Franchise Disclosure Document, any interest rate charged to a franchisee in California must comply with the state's constitution. The maximum interest rate cannot exceed either 10% annually or 5% annually plus the prevailing interest rate charged to banks by the Federal Reserve Bank of San Francisco, whichever of the two is higher.

This stipulation is important for prospective Gokhale Method franchisees in California because it sets a limit on the amount of interest the franchisor can charge on any financing or outstanding payments. This protection ensures that franchisees are not subjected to excessively high interest rates, which could negatively impact their business's financial health.

For example, if the Federal Reserve Bank of San Francisco is charging banks 4% interest, then Gokhale Method could charge a maximum of 9% (5% + 4%) to its California franchisees. However, if the Federal Reserve rate was 6%, then Gokhale Method could charge the franchisee up to the maximum of 10% annually, as the alternative calculation (5% + 6% = 11%) would exceed the 10% limit. This addendum ensures that California franchisees receive the benefit of whichever calculation is most favorable to them.