Does a secured party of Pearce Bespoke have any obligations to the franchisee solely because of the security interest?
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 the 2025 Pearce Bespoke Franchise Disclosure Document, if a franchisee seeks financing with the assistance of the United States Small Business Administration (SBA), the franchisee is permitted to grant the lender a senior lien on any collateral used to secure the SBA 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 related to this subordination.
This means that if a Pearce Bespoke franchisee obtains SBA financing, the lender providing the SBA financing will have priority over Pearce Bespoke's security interest in the franchisee's collateral. This subordination is a standard practice in SBA lending to facilitate franchisee access to capital. The waiver of written acknowledgement simplifies the process for the franchisee.
This clause is beneficial for prospective Pearce Bespoke franchisees as it streamlines the process of obtaining SBA financing, which can be a critical source of funding for new businesses. By subordinating its own security interest and waiving the written acknowledgement, Pearce Bespoke makes it easier for franchisees to secure necessary loans. However, the FDD does not specify any obligations of the secured party to the franchisee.