Can the Franchisee use the Southern Steer Franchise Agreement as collateral?
Southern_Steer Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisee is a corporation, partnership, limited liability company, or other entity, or in the future become a corporation, partnership, limited liability company, or other entity, Franchisor will require Franchisee's officers, directors, shareholders, partners, members, managers, owners, and owner's spouses or domestic partners to sign the Personal Guaranty attached hereto as Attachment C.
- (g) Security Interest in Franchise Agreement. This Agreement and the Southern Steer Business granted to the Franchisee hereunder may not be used by the Franchisee as collateral or be the subject of a security interest, lien, levy, attachment or execution by the Franchisee's creditors, any financial institution, or any other party, except with the prior written approval of the Franchisor.
- 9.6. Enforcement.
Source: Item 22 — ITEM. 22 CONTRACTS (FDD pages 61–168)
What This Means (2025 FDD)
According to the 2025 Southern Steer Franchise Disclosure Document, the franchise agreement generally cannot be used as collateral. Southern Steer's franchise agreement and the business granted to the franchisee cannot be used as collateral for a security interest, lien, levy, attachment, or execution by the franchisee's creditors, financial institutions, or any other party. The only way a franchisee can use the franchise agreement as collateral is with prior written approval from Southern Steer.
This restriction protects Southern Steer by preventing franchisees from encumbering the franchise rights without the franchisor's consent. This provision helps Southern Steer maintain control over who operates a Southern Steer Business and ensures that the brand's integrity is upheld. Without this clause, a franchisee could potentially lose the franchise to a creditor who may not be suitable or capable of running the business according to Southern Steer's standards.
However, this restriction does not apply to the transfer of major assets (excluding the franchise agreement itself) to a bank, financial institution, or other lender in connection with financing the real estate, leasehold improvements, FF&E, inventory, supplies, or working capital required for the Southern Steer Business. This exception allows franchisees to obtain necessary financing for their business operations without violating the collateral restrictions of the franchise agreement, as long as the franchise agreement itself is not used as collateral. This balance enables franchisees to secure funding while protecting Southern Steer's interests.