Is a Pearce Bespoke franchisee prohibited from pledging shares of capital stock as security to an institutional lender?
Pearce_Bespoke Franchise · 2025 FDDAnswer from 2025 FDD Document
Nothing in this Section will be construed as prohibiting the shares of Capital Stock of a corporate Franchisee from being pledged as security to an institutional lender who has provided financing to or for the Pearce Bespoke Franchise; provided the institutional lender accepts such security interest subject to Franchisor's reasonable conditions. Notwithstanding the foregoing, in the event Franchisee seeks and/or obtains financing whereby funding is provided with the assistance of the United States Small Business Administration ("SBA Financing"), Franchisee shall be permitted to grant the lender of such SBA Financing a senior lien on any collateral Franchisee uses to secure the SBA Financing, and Franchisor and Franchisee further agree that (i) the provisions of Attachment D are fully incorporated herein and applicable to Franchisor and Franchisee, (ii) Franchisor shall subordinate its security interest or other lien on Franchisee's collateral to that of the lender of the SBA Financing and (iii) Franchisor waives the requirement of the written acknowledgement referenced in this Section.
Source: Item 22 — CONTRACTS (FDD page 39)
What This Means (2025 FDD)
According to Pearce Bespoke's 2025 Franchise Disclosure Document, a corporate franchisee is not prohibited from pledging shares of capital stock as security to an institutional lender. The document states that nothing in that section should be interpreted as preventing a corporate franchisee from pledging shares as security to an institutional lender that has provided financing to the Pearce Bespoke franchise. However, this is conditional on the institutional lender accepting the security interest subject to Pearce Bespoke's reasonable conditions.
An exception to this condition exists if the franchisee seeks financing with the assistance of the United States Small Business Administration (SBA). In such cases, the franchisee is permitted to grant the lender of the SBA financing a senior lien on any collateral used to secure the financing. Pearce Bespoke also agrees to subordinate its security interest or other lien on the franchisee's collateral to that of the SBA lender. Additionally, Pearce Bespoke waives the requirement of a written acknowledgement typically required in such security interest arrangements.
This provision offers flexibility for Pearce Bespoke franchisees seeking financing, as it allows them to use their capital stock as collateral for loans from institutional lenders. The stipulation that the lender must accept the security interest subject to Pearce Bespoke's conditions suggests that Pearce Bespoke retains some control over these transactions, likely to protect its interests and ensure the financial stability of its franchisees. The exception for SBA financing further facilitates access to capital for franchisees by allowing a senior lien for SBA lenders and waiving certain requirements, making it easier for franchisees to obtain SBA-backed loans.