IFA Insider, Vol. 14, Issue No. 1, Monday, January 5, 2009
IFA Urges Small-Business Loan Action, 5-Point Recovery Plan
The International Franchise Association is urging U.S. Treasury Sec. Paulson to consider the critical role franchised-small business can play in driving economic recovery and to take action under the Troubled Assets Relief Program to improve the marketplace for small-business loans.
“There are more than 900,000 franchised establishments in the U.S. that are responsible for creating 21 million American jobs and generating $2.3 trillion in economic output,” said IFA President and CEO Matthew Shay. “A healthy franchise industry will significantly assist economic recovery in this country and taking action under TARP to make capital available and affordable is a critical step toward that goal.”
IFA has developed a five-point economic recovery plan that calls for increasing the amount of credit available to franchised-small businesses by strengthening secondary markets, increasing access to capital by changes in SBA loan programs, reducing tax burdens and uncertainties in the tax code that restrains business investments, making small-business health insurance more affordable and increasing support for veterans to become small-business owners.
In a letter to Paulson, Shay stated that franchised-small businesses rely on programs such as SBA 7(a) and 504 loan guarantees to ensure that affordable financing is available, since many franchisees purchase their businesses using a combination of personal savings, investments, and borrowed funds. Further delay in addressing the financing needs of small businesses in the U.S. will lead to slower recovery and continued job loss, he said.
Shay added that the secondary market for healthy SBA guaranteed loans remains dysfunctional. “Investors who normally flock to the security of federally-guaranteed loans are currently seeking investments with higher interest rates. This forces lenders to keep SBA loans on their balance sheets instead of offering them in the secondary market. Without a market, lenders are losing a critical source of additional funding to authorize new loans.”
The increased costs of available SBA loans make them unaffordable to small businesses. “In order to free up the market for new SBA loans, we urge you to deploy TARP funds to purchase a significant portion of existing healthy SBA loans pooled from the secondary market,” Shay’s letter to the secretary noted.
IFA supported enactment of the TARP program. Even though many financial institutions received necessary support, these efforts are not making their way to franchised-small businesses. On Wednesday, IFA will release an economic forecast that confirms many individuals turn to franchised businesses because they offer unique competitive advantages.
“Franchising offers a strong foundation from which to encourage job growth and recovery,” Shay said. “By providing franchised businesses the capital necessary through a fully functioning secondary market, these entrepreneurs will help lead us out of recession.”
FTC May Require New Identity-Theft Programs
The Federal Trade Commission has announced that it will begin enforcement of the new “Red Flags Rule” on May 1 to require creditors and financial institutions to develop and implement written identity-theft prevention programs. The rule, developed under the Fair and Accurate Credit Transactions Act of 2003, requires financial institutions and creditors to develop and implement written identity-theft prevention programs that must provide for identification, detection, and response to patterns, practices, or specific activities--known as “red flags”--that could indicate identity theft. Franchise systems and some franchisees may need to assess whether transactions between a franchisor and its franchisees, and as well as those between franchisees and retail consumers, fit the act’s definitions.
FTC defines a financial institution as a state or national bank, a state or federal savings and loan association, a mutual savings bank, a state or federal credit union, or any other entity that holds a “transaction account” belonging to a consumer. Most of these institutions are regulated by the federal bank regulatory agencies and the National Credit Union Act. Institutions under the FTC’s jurisdiction includes state-chartered credit unions and other entities that hold consumer transaction accounts.
A transaction account is defined as a deposit or other account from which the owner makes payments or transfers and include checking accounts, negotiable order of withdrawal accounts, savings deposits subject to automatic transfers, and share draft accounts. A creditor is any entity that regularly extends, renews, or continues credit; any entity that regularly arranges for the extension, renewal, or continuation of credit; or any assignee of an original creditor who is involved in the decision to extend, renew, or continue credit. Accepting credit cards as a form of payment does not necessarily make an entity a creditor. Creditors include finance companies, auto dealers, mortgage brokers, utility companies, and telecommunications companies. Where non-profit and government entities defer payment for goods or services, they, too, are to be considered creditors. Most creditors, except for those regulated by federal bank regulatory agencies and the NCUA, come under FTC jurisdiction.
Some franchise systems that routinely extend credit to franchisees or consumers may fall under the law’s definition of creditor. The FTC also believes that the definition of credit relationship may be broad enough to include some monthly royalty payments from franchise owners. Additionally some franchisees may be engaging in consumer transactions that could also fall under rule, particularly if offering extended credit terms to consumers.
The rule became effective Jan. 1, but full compliance was not originally planned until Nov. 1. During the commission’s education efforts following publication of the rule, the commission discovered that many industries and entities within its jurisdiction were uncertain about their coverage within the act’s definitions and therefore learned of the requirements too late to be in compliance by Nov. 1. As a result, the commission postponed the effective date for enforcement until May.
This enforcement delay is limited to the Identity Theft Red Flags Rule and does not extend to the rule regarding address discrepancies applicable to users of consumer reports, or to the rule about changes of address for card issuers.
For additional information, contact IFA Vice President of Government Relations David French at 202-662-0768 or firstname.lastname@example.org.
IFA Launches Grassroots Toolkit on “Card Check”
The passage of the pro-labor Employee Free-Choice Act—known as “card check”--would decisively end a worker's right to a secret-ballot election when deciding whether to form a union. To counter the serious threat that this anti-worker legislation poses to franchise small businesses, IFA has launched a “grassroots toolkit” on its Web site, Franchise.org, to encourage its members to communicate with lawmakers.
The tool kit is a “one-stop” resource center that explains EFCA's impact on franchising, offers talking points and sample letters that can be sent to Congress, as well as several other materials.
The act also calls for imposing contract terms on private employers through a process of compulsory binding arbitration. If an employer and a union are unable to reach agreement on a first contract within 90 days, it can be referred to the Federal Mediation and Conciliation Service for mediation. After 30 days of mediation, the dispute will be referred to arbitration. Results of the arbitration will then be binding for two years.
The legislation was first introduced in 2007 and is expected to be reintroduced in early January. For information, contact IFA Director of Government Relations Jason Straczewski at 202-662-0797 or email@example.com.
New Kansas Law to Affect Liability Indemnity, Dispute Venue Clauses
Following the passage of House Substitute for Senate Bill 379 during the 2008 legislative session, a new Kansas law affecting franchised businesses became effective Jan. 1. The bill, as debated in the legislature, was targeted at the construction industry and primarily focuses on contract risk-allocation provisions in many commercial contracts. However, it also includes language that will mandate Kansas as the venue for disputes when a franchisee resides in Kansas.
The law may apply broadly to all franchise contracts, although this point is still being assessed. The definition of a dealership agreement in the legislation is broad, and the additional language defining a franchise agreement covers “any contract or franchise or any other terminology.” These definitions are drawn, however, from existing Kansas statutes governing automobile dealers and liquor distributors, as well as the Kansas farm equipment dealership law, indicating that regulating relationships in business-format franchising may not have been the sponsors’ intent.
The practical impact of the indemnification and additional insured provisions in the bill seems very limited and likely achieves little beyond how a court would allocate responsibility under existing law.
The new law contains a broadly crafted provision in Section E that invalidates choice of law and venue selection clauses in franchise agreements. The arbitration restrictions, however, are obviously deficient under the Federal Arbitration Act and there may also be a constitutional problem with the retroactive impact of this section.
IFA will work with the bill’s advocates and in-state allies to identify strategies to mitigate the harmful repercussions on franchising in Kansas during the 2009 legislative session. IFA members are urged to provide feedback to the association that will enable the industry’s concerns to be fully addressed as the legislature returns to session in January. Contact Troy Flanagan at firstname.lastname@example.org or 202-662-0792 for additional details.
New Temporary Visa Rules Effective January 19
In mid-December, the U.S. Citizenship and Immigration Services published its final rule for the H-2B non-agricultural worker program and a day later the Dept. of Labor published its revisions. The H-2B visa allows U.S. employers to bring foreign nationals into the country to fill temporary non-agricultural jobs for which there is a shortage of available workers. Key revisions include reducing the waiting time from six months to three months for H-2B workers who previously spent three years in the United States, amending the definition of “temporary services or labor” to provide flexibility for employers and workers to complete projects, and delegating authority to the Labor Department to impose penalties on willful misrepresentations in H-2B petitions.
IRS Offers Small Business Filing Tips Via Webcast
Small-business owners who want to get a head start on the 2009 tax filing season are urged to join the IRS’s Jan. 13 Web cast program, “Getting Ready for Filing Season 2009,” at 2 p.m. EST. The 100-minute session will feature experts discussing tax form updates, law changes, common errors to avoid and processing issues that will affect those preparing 2008 business returns.
Sponsored by the IRS, Tax Talk Today is a free, monthly interactive Web cast aimed at educating tax professionals and their business clients on the most contemporary and complex tax issues.
To access the program, viewers may register online at this location and can view the program with Windows Media Player and Real Player. Both players are free software that may already be installed on computers.
The next show is “Surviving an IRS Audit” scheduled for March 10. To learn about the availability of IRS products and services, subscribe to IRS’s e-News for Small Businesses.
A Snap-shot of the Sunday Sessions in San Diego
The International Franchise Association’s 49th Annual Convention, which gets underway Feb.14 and concludes on Feb. 17, offers franchise professionals a jam-packed schedule of events to cater to a range of interests and experience levels. On Sunday Feb. 15, the day kicks off with the increasingly-popular, non-denominational prayer breakfast to energize attendees on the first official day of educational sessions. The breakfast is offered on a complimentary basis to the first 300 fully-registered individuals on a first-come, first-serve basis.
Following the breakfast, attendees will have the option to choose from several half-day summits on topics that include strategies for international development, tactics for building partnerships that impact diversity, methods for improving the success rate of funding, techniques for successful franchising, best practices for improving technology and insights into the registration and disclosure process.
The highlight of the day will be the opening general session where former President Bill Clinton will deliver the keynote address. The remainder of the afternoon includes the first batch of concurrent educational sessions which are suited for attendees from wide range of experience levels. A bonus session designed for large and mature franchisors, entitled “The China Regulations & How to Climb the Great Wall,” will illustrate IFA’s efforts to create a workable structure for franchising and will feature next steps for foreign franchisors entering China. Moderated by IFA Pres. and CEO Matthew Shay, the session speakers include DLA Piper Partner Philip Zeidman, Edwards Global Services CEO William Edwards, CFE, and DLA Piper Associate Tao Xu. The day concludes with the Minorities in Franchising reception which will celebrate the diversity of the franchise community.
Prior to the convention, attendees, especially first-timers, may take advantage of complimentary “webinars” that address key elements of the fete and provide tips for maximizing their experience in San Diego. Hosted by members of IFA’s Convention Committee with assistance from IFA staff, the next Web-based seminar is scheduled for 1:00 pm EST on Jan. 13.
The session facilitators will reference the convention program brochure. To participate in the webinar, register in advance by clicking here. Those registered will receive an email from ReadyTalk with instructions for accessing the webinar.
ICFE Special Sessions on Financial Performance and More in February
The Institute of Certified Franchise Executives will be conducting its 2009 ICFE Special Sessions Feb. 13-14 in San Diego. The sessions will cover topics that include franchise relations, brand marketing, financial management, leadership best practices and international business development. Registration for these sessions is separate from IFA convention registration.
The ICFE Board of Governors recently implemented a new requirement for the CFE program which will be effective Feb. 1. As of that date, individuals who enroll in the CFE program will be required to successfully complete the online ICFE Study Guide Exam as part of their curriculum.
Candidates seeking the CFE designation must complete a minimum of 3,500 credits to qualify. For information, contact Certification Program Manager Rose DuPont at 202-662-0771 or email@example.com.
Credit-Crunch Tips Featured in Regional Franchise Meetings Jan. 13
IFA’s Franchise Business Network meetings will commence in more than 30 cities across the United States on Jan. 13. The meetings, scheduled for the second Tuesday of each quarter, will feature networking opportunities, educational programming, and legislative updates.
The Jan. 13 gathering is entitled “Franchise Development During a Credit Crunch.” The only cost to attend is for meals. IFA continues to suggest topics and issues of current importance for the hosts to discuss yet ultimately allows them to choose the theme.
The following Franchise Business Network sites are confirmed for 2009: Atlanta; Baltimore; Chicago; Columbus; Dallas; Dayton; Denver; Detroit; Fort Worth; Houston; Kansas City, Mo.; Las Vegas; Los Angeles; Louisiana; Mid-Michigan; Minneapolis; Mid-South (Ala., Tenn., Miss.); New Jersey; New York; Orange County, Calif., Orlando; Philadelphia; Phoenix; Pittsburgh; Portland, Ore.; Raleigh; Salt Lake City; San Diego; San Francisco; Seattle; South Florida; Tampa; and Washington, D.C.
The dates and suggested topics for the remaining three meetings will include April 14: Hiring, Firing, and Retaining Employees in Tough Economic Times; July 14: Financing for Franchisees through SBA, 7A, 504 Loan Programs; and Oct. 13: Different Models for Franchise Growth—Broker Network, Area Representative, and Development Agent.
For information, contact IFA Director of Membership Services Paul Rocchio at 202-662-0790 or firstname.lastname@example.org.
Welcome New IFA Members!
Franchise Systems: Winzer Corporation, Dallas; Mama Fu's Asian House, Austin, Texas; Ductz International, LLC, Ann Arbor; Philly Dawgz, Little Canada, Minn.; Masala Bowl Indian Cafe, Brea, Calif.; Red Mango, Inc., Sherman Oaks, Calif; Right Time Kids, Raleigh, N.C.; Zen Massage, Charlotte; Max's of Manila, Boulder.; Floods4Less, Inc., Santee, Calif.; Sunshine Grounds Care, Caledon, Ontario; On-Target Maintenance, Haverstraw, N.Y.; Golden Spoon Franchising, Inc., Rancho Santa Margarita, Calif.; Lifetree, Loveland, Colo.; Nutty Scientists USA, Inc., Tucson; Value Builders Franchising, LLC, Centennial, Colo; Big Frog Custom T-Shirts, Clearwater, Fla.
Supplier Forum: Arnall Golden Gregory, LLP, Atlanta; Harness, Dickey & Pierce, PLC, Reston, Va.; Vernon Law Group, PLLC, Dallas; Franchise & Business Advisors LLC, Naples, Fla.; ScreenMatter, Inc., Ardmore, Pa.; Altametrics, Los Alamitos, Calif.; Conation Franchise Consultants, Carrollton, Texas; Unisource Program Administrators, Oklahoma City.; Source Communications, Hackensack, N.J.; Friendvouch, Scottsdale, Ariz.; Virtual PBX, San Jose, Calif.