Franchise agreement
What is a franchise agreement
A franchise agreement is a legal contract between a franchisor (the company that owns the trademark or brand) and a franchisee (the individual or company that is granted the right to operate a business using the franchisor's trademark or brand). The agreement outlines the terms and conditions of the franchise relationship, including the rights and responsibilities of both parties, the fees and royalties that the franchisee must pay, and the length of the franchise term.
Why is your franchise agreement important to a lender
A franchise agreement is important to a lender because it provides information about the business model and the terms of the franchise relationship. This can help the lender to better understand the franchisee's business and the level of support and resources that will be available to them.
The lender can also assess the franchisor's track record and reputation, which can provide insight into the potential success of the franchisee's business. Additionally, the franchise agreement can provide information about the fees and royalties that the franchisee will be required to pay to the franchisor, which can help the lender to determine the franchisee's projected cash flow and ability to repay the loan.
Furthermore, the franchisor's history, the terms of the agreement and the franchisee's financial capability are all important factors to the lender to decide whether to approve the loan or not.
How to access this document
As a business owner, there are several ways to access a franchise agreement:
Contact the franchisor directly: Many franchisors will provide a copy of the franchise agreement to prospective franchisees during the initial stages of the franchise application process.
Visit the franchisor's website: Some franchisors make their franchise agreements available for download on their website.
Review the franchise disclosure document: The Federal Trade Commission requires franchisors to provide a disclosure document to prospective franchisees, which includes a copy of the franchise agreement as well as other important information about the franchise.