March 22, 2022
SBA Hot Topic Tuesday – Senate Small Business Committee Discusses Two Franchise Bills
“For many small business owners, franchising has been a path to the middle class and financial security. For many others, opening a franchise has led to financial ruin,” says the Senate Small Business Committee’s Chair, Senator Ben Cardin, during his opening statement. “The model has its risks, with a disproportionate amount falling on the franchisee … Congress can help maintain and improve this successful business model while increasing transparency to protect entrepreneurs chasing the American Dream from bad actors and fraudsters.”
On March 16, the Senate Committee on Small Business & Entrepreneurship held a hearing titled “Small Business Franchising: An Overview of the Industry, SBA’s Role, and Legislative Proposals”. Senator Catherine Cortez Masto introduced two bills to ensure franchisee borrowers have the necessary financial information.
The “SBA Franchise Loan Transparency Act” would require prospective franchise borrowers to receive accurate historical revenue and store closure information from the franchise corporation before a taxpayer-backed SBA loan is approved.
The “SBA Franchise Loan Default Disclosure Act” requires the SBA to publish the default rates of each franchise brand over the past decade so new franchisee borrowers can make an informed decision knowing the risk levels.
Also on March 16, the House Committee on Small Business & Entrepreneurship held a hearing, “The Empirical Review of the Paycheck Protection Program”. In the first panel, William Shear from the Government Accountability Office noted that early PPP loans favored the larger and rural small businesses, but by the program’s close, lending to underserved communities was proportional to their representation in the overall small business community. The second panel consisted of researchers from universities and a representative from the Independent Community Bankers of America.
“Your research analyzing PPP is a vital tool for all of us on this Committee as we work to make SBA programs reach the smallest of small businesses throughout the country, and it’s heartening to see that the changes Congress did institute had a profound effect on entrepreneurs that were initially shut out of PPP. It’s also vital that we take the lessons learned from the PPP program and apply them to current and future SBA programs. Making these programs more accessible and equitable will ensure that more entrepreneurs can pursue their dreams and that all small businesses have a chance not just to survive, but to thrive,” says the Honorary Dean Phillips.