,i  #aaeth ,,congress  #ast ,session    
,h4 ,r4 #dga  ,,in ,,the ,,house ,,of   
,,representatives  ,january #ab1        
#bjag,mr4 ,ellison 7for himself1 ,mr4   
,huffman1 ,mr4 ,conyers1 and ,ms4       
,mc,collum7 introduced the following    
bill2 which was referred to the         
,committee on ,energy and ,commerce  ,a 
,,bill  ,to establish minimum standards 
of disclosure by franchises whose       
franchisees use loans guaranteed by the 
,small ,business ,administration4  #a4  
,short title ,this ,act may be cited as 
the ,small ,business ,administration    
,franchise ,loan ,transparency ,act of  
#bjag4  #b4 ,findings and purpose  7a7  
,findings ,congress makes the following 
findings3  7#a7 ,franchise businesses   
represent a large and growing segment of
 the retail and service businesses of   
the ,united ,states and are rapidly     
replacing more traditional forms of     
small business ownership in the economy 
of the ,united ,states4  7#b7 ,the      
,small ,business ,administration 7,,sba7

 guarantees much of the financing       
available in franchising4  7#c7 ,the    
,,sba requires pro forma projections1   
including projected revenue1 for the    
first year of operations of a franchise 
as part of the standard operating       
requirements for a franchisee to qualify
 for financing4  7#d7 ,on ,july #ac1    
#bjaa1 the ,,sba ,office of ,inspector  
,general published an audit 7,report    
,no4 #aa-af7 on loans made under section
 #g7;a7 of the ,small ,business ,act to 
,huntington ,learning ,center franchises
 where first year revenue projections   
were all significantly inflated4  7#e7  
,on ,july #b1 #bjac1 the ,,sba ,office  
of ,inspector ,general published an     
audit evaluation 7,report ,no4 #ac-ag7  
showing that the ,,sba needed to improve
 the management of its #g7;a7 loan      
portfolio risk1 specifically with       
certain franchise brands that had       
exceptionally high default rates that   
continued to receive guaranteed loans   
from the ,,sba4  7#f7 ,in ,september    

#bjac1 the ,government ,accountability  
,office published a study               
7,,gao-#ac-gei7 showing that over the   
#aj-year period from #bjjc to #bjab1 #bh
 percent of #g7;a7 loans to franchises  
required a guarantee payment4 ,the study
 was based on #cb1cbc loans totaling    
#aj4f billion1 which required #a4e      
billion in guarantee payments4 ,the     
report specifically stated1 ,potential  
franchisees should include first-year   
revenue estimates in their ,,sba loan   
applications4 ,however1 this information
 is not necessarily available to        
potential franchisees in the franchise  
organization's disclosure document44    
7#g7 ,franchise companies most often    
collect royalties based on gross        
revenue2 therefore1 revenue data on each
 franchise outlet are readily available4
  7#h7 ,while both the franchisor and   
the lender profit as a result of the    
,,sba financing1 only the franchisee    
bears the total liability for the loan4 
7b7 ,purpose ,it is the purpose of this 

,act to-- 7#a7 ensure transparency in   
the loan processes of the ,small        
,business ,administration1 so that the  
franchisee borrower1 the lender1 and the
 ,administration all have access to     
information that is key to the lending  
process2  7#b7 remove any hidden        
discussions between the franchisor and  
the lender on financial data critical to
 the loan approval process2  7#c7 lower 
the fees and rates charged to franchisee
 borrowers2 and  7#d7 help ensure lower 
default rates in order to make more     
money available for loans4  #c4         
,required disclosures  7a7 ,in general  
,a franchisor1 except for a franchisor  
of a franchise in the lodging industry1 
shall disclose in the required ,federal 
,trade ,commission disclosure document1 
the following3  7#a7 ,the average       
first-year revenue for all franchise    
locations for each of the preceding five
 years of operation4  7#b7 ,the number  
of franchise locations that went out of 
business or were sold by the franchisee 

during the first year of operation for  
each of the preceding five years4  7#c7 
,average revenues for all locations of  
the franchise for each of the preceding 
five years of operation1 aggregated to  
show the top #be percent1 middle #ej    
percent1 and the bottom #be percent of  
revenue4  7b7 ,disclosure to prospective
 franchisee ,any financial information  
relating to the performance of any      
location of a franchise that is provided
 by the franchisor1 or its              
representatives1 to the lender for the  
purpose of qualifying the loan1 shall be
 disclosed to the prospective franchisee
 borrower4  #d4 ,definitions ,for       
purposes of this ,act1 the following    
definitions apply3 7#a7 ,the term       
disclosure document means the disclosure
 statement required by the ,federal     
,trade ,commission in ,trade ,regulation
 ,rule #dcf 7#af ,fed4 ,reg4 #dcf74     
7#b7 ,the terms franchise1 franchisee   
and franchisor have the meanings given  
such terms in section #dcf4a of title   

#af of the ,code of ,federal            
,regulations as in effect on ,july #a1  
#bjjg4  #e4 ,severability ,if any       
provision of this ,act or any           
application of this ,act to any person  
or circumstances is held invalid1 the   
remainder of this ,act and its          
application to any person or            
circumstance shall not be affected      
thereby4