SNAP-ON TOOLS Why SBA Won’t Guarantee Snap-On Franchise Loans
If you are interested in financing your Snap-on Tool franchise via an SBA-guaranteed loan, looks like you’re out of luck.
The Small Business Administration has determined that the Snap-on franchise does not meet its definition of a small business.
Why? Because the SBA has determined that “appears to exercise too much control over the Franchisee such that the Franchisor and Franchisee may be considered affiliates and therefore ineligible for SBA financial assistance.”
According to the SBA (and Snap-on critics), Snap-on dominates its franchisees’ operations so completely that they are not independent business owners.
Why Snap-on Does Not Appear in the SBA Franchise Registry
According to the SBA Franchise Registry website:
The Franchise Registry lists names of franchise systems whose franchisees enjoy the benefits of a streamlined review process for U.S. Small Business Administration (SBA) financings. Loan applications for franchises on the Franchise Registry can be reviewed and processed more efficiently and quickly by SBA and its lenders because the respective franchise agreements do not need to be reviewed in each individual franchisee situation.
This is because, through the Registry process, the SBA has already reviewed the franchise agreement and has determined that there are no unacceptable control provisions by the franchisor over its franchisees. Unacceptable control provisions could result in affiliation with a franchisor that is considered to be other than small; that would mean that a franchisee would not be considered to be a small business eligible for SBA financing…
Listing on the Registry means that the franchise agreement does not impose unacceptable control provisions on a franchisee or potential franchisee (which could result in affiliation with a franchisor)…
Snap-on Tools franchise is not eligible for listing in the Registry because the SBA has determined that Snap-on franchise agreement DOES “impose unacceptable control provisions on a franchisee or potential franchisee.”
Not long ago, a franchise owner learned this fact when his bank’s application was rejected via the letter below.
Snap-on Exerts “Too Much Control Over The Franchisee” (SBA)
In 2010, a prospective Snap-on franchisee sought to get SBA-guaranteed financing. However, his bank was told Snap-on franchises were not eligible for SBA guarantees because Snap-on exerts “too much control over the franchisee.”
The bank received this rejection letter regarding Snap-on:
FRANCHISE ELIGIBILITY OPINION
{FOUND NOT ELIGIBLE}DATE: [redacted]
TO: [bank name redacted]
RE: [franchisee name redacted]
Franchisor: Snap-On
You have requested an opinion as to the eligibility of a proposed Snap-On franchise for SBA Assistance.
The controlling provision of the Code of Federal Regulations (CFR) for assistance to franchisees/licensee is found at 13 CFR § 121.103(g), which states:
The restraints imposed on a franchisee or licensee by its franchise or license agreement relating to standardized quality, advertising, accounting format and other similar provisions generally will not be considered, in determining whether the franchisor or licensor is affiliated with the franchisee or licensee provided the franchisee or licensee has the right to profit from its efforts and bears the risk of loss commensurate with ownership. Affiliation may arise, however, through other means, such as common ownership, common management or excessive restrictions on the sale of the franchise interest.
The following provisions of the franchise agreement restrict the right to profit commensurate with ownership. Those include:
- The franchisee does not receive an exclusive territory. Instead, the franchisee receives the right to purchase products from Snap-on for resale, only at the locations identified on the List of Calls.
- The franchisee cannot sell products at any location not identified on the List of Calls, even if the location is adjacent to, or near, stops on the List of Calls, or to any customer who moves to a location not identified on the List of Calls. If the franchisee wants to sell products at any location not on the List of Calls, the franchisee must request that the additional location be added to the List of Calls. Snap-on, in its sole discretion, will determine whether to add these additional locations to the List of Calls.
- Snap-on reserves the right to “adjust” the List of Calls and the number and/or location of stops on the List of Calls if it determines in its sole discretion that these changes are necessary.
- To “assist in managing cash flow,” Snap-on requires a franchisee to deposit with Snap-on a certain amount of money called the “Revolving Account Deposit.” A minimum of $25,000 is required, up to a maximum of $40,000. This provides for franchisee financing of all revolving account sales.
Therefore it is my conclusion that, the franchisee does not have the right to profit commensurate with ownership and is therefore not eligible for SBA financial assistance As a result of the CFR conflict, the Franchisor appears to exercise too much control over the Franchisee such that the Franchisor and Franchisee may be considered affiliates and therefore ineligible for SBA financial assistance.
Carmelo E. Burgos, Attorney
Why Are Matco And Cornwell Tools on the SBA Franchise Registry?
Unhappy Franchisee has featured several posts (Failure Rates of the 10 Most Popular Franchises, MATCO TOOLS Distributor Franchise) documenting the high SBA loan default rates of the three other mobile tool franchises (Matco Tools 37% default rate, Mac Tools 31.82% default rate, Cornwell Tools 42% default rate), yet 2 tools franchises (Matco & Cornwell) remain on the SBA Franchise Registry.
Matco Tools and Cornwell Tools franchise agreements both appear to share the same basic provisions and restrictions, as they too mandate and restrict franchisees to sell only to a predetermined “List of Calls,” yet they appear to be eligible for SBA-guaranteed loans.
Should American taxpayers foot the bill for the defaults in loans to franchises that do not appear to meet SBA eligibility requirements?
Can anyone account for this apparent contradiction? What do you think? Please add a comment below.
Feel free to contact UnhappyFranchisee.com
What is the most effective way to contact the SBA to file a complaint?
Obviously, Matco and Cornwell should not qualify for SBA loans!
It does beg the question, “Why” are Matco distributors still getting funding via
SBA loans?
Get us the info on contacting the SBA and we will help try and put a stop to this.
I feel snap on dealers are undisclosed employees.
The truth comes out…
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Snap-on controls their own world. Once in their network they own you.
Snap-on Controls:
1. your personal credit
2. how much you make
3. your potential customers.
For Snap-on to grow they must shrink you and make a profit on everything you do.
first they shrink our routes to make room for more routes. Its called churning.
second they must make a profit on everything you as a dealer does. snap-on coerces us to use chasepaymentech as a credit card provider by only allowing chase paymentech to work in the Snap-on operating system. Then Snap-on gets paid by Chase increasing our costs.
In addition snap-on forces us dealers to take credit cards as payments on long term debt. I am pretty sure it is illegal to pay credit with credit. If someone knows how to research this I would love to see the law. Snap-on credit calls dealers all the time asking us to take the credit card as payment because they can’t take the credit card. they can’t take card because Snap-on credit knows its illegal. I would love to gather enough info about this to bring a class action lawsuit against Snap-on for this practice. Join wwwmobiletooldealersassociation.com. If your tired of being gouged by your tool comapny join.
Debbie
Snap-on does not even want SBA funding. They are making all the profits off of new recruits. Mac and Matco want the funding. Soon they will be following in snap-on footsteps and wrapping everything up in house and gouging all dealers like Snap-on.
Please join.. http://www.mobiletooldealersassociation.com
http://www.mobiletooldealersassociation.com... Please join and let your voice be heard.
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I was reading the Forbes piece and couldn’t believe the ignorance of the author when it came to Franchising.
The fact that there is a negative eligibility franchise opinion from the SBA is a huge red flag – how on earth could anyone miss the significance of this, unless they knew nothing about franchising!
The route franchises, tools, bread, cookies, water, etc. all share similar features in common – the devaluation of the route by the franchisor seems to happen as part of the franchisor’s business plan.
You should probably be in contact with as many route franchisees as possible, and not just in tools.
Take a look at some of Jeff Lefler’s work: http://jefflefler.wordpress.com/national-bread-network/ and his National Bread Franchisee Association in Canada. His franchisees deliver bread for Canada Bread – one of the biggest bakeries in Canada. You guys have a lot in common.
Well said Michael. Well said. I think Forbes should be ashamed of themselves for writing crap. I did enjoy reading the web site for the bread association. You should check out our association http://www.tooldealersassociation.com
Yes, I did look at the association website, wrote a short article about here:
http://www.franchise-info.ca/franchisee_association_news/2012/03/is-snap-on-tools-the-next-coverall.html
What you wrote does make sense. Snap on tools does have to much control of the franchisees. I see it everyday… I survive only because I read between the lines.
Franchise attorney Michael Webster wrote:
Is Snap-On Tools the next Coverall?
http://www.franchise-info.ca/franchisee_association_news/2012/03/is-snap-on-tools-the-next-coverall.html
Coverall is a janitorial franchise. A MA judge ruled Coverall maintains such control over the franchisees’ businesses that their franchisees are actually, technically, employees and should be protected by labor laws as such, including being paid min. wage, overtime, unemployment, etc.
What do you think? Could courts rule that Snap-on maintains such excessive control that their franchisees are employees, not business owners?
I been fighting that argument a long time. I think we are undisclosed employees.
Here is an idea: file an worker’s comp claim for a work related injury. See what happens.
Great idea. Perhaps the 1000+ “reacquired” franchisees should all file for unemployment at once :)
You have requested an opinion as to the eligibility of a proposed Snap-On franchise for SBA Assistance.
The controlling provision of the Code of Federal Regulations (CFR) for assistance to franchisees/licensee is found at 13 CFR § 121.103(g), which states:
The restraints imposed on a franchisee or licensee by its franchise or license agreement relating to standardized quality, advertising, accounting format and other similar provisions generally will not be considered, in determining whether the franchisor or licensor is affiliated with the franchisee or licensee provided the franchisee or licensee has the right to profit from its efforts and bears the risk of loss commensurate with ownership. Affiliation may arise, however, through other means, such as common ownership, common management or excessive restrictions on the sale of the franchise interest.
The following provisions of the franchise agreement restrict the right to profit commensurate with ownership. Those include:
■The franchisee does not receive an exclusive territory. Instead, the franchisee receives the right to purchase products from Snap-on for resale, only at the locations identified on the List of Calls.
■The franchisee cannot sell products at any location not identified on the List of Calls, even if the location is adjacent to, or near, stops on the List of Calls, or to any customer who moves to a location not identified on the List of Calls. If the franchisee wants to sell products at any location not on the List of Calls, the franchisee must request that the additional location be added to the List of Calls. Snap-on, in its sole discretion, will determine whether to add these additional locations to the List of Calls.
■Snap-on reserves the right to “adjust” the List of Calls and the number and/or location of stops on the List of Calls if it determines in its sole discretion that these changes are necessary.
■To “assist in managing cash flow,” Snap-on requires a franchisee to deposit with Snap-on a certain amount of money called the “Revolving Account Deposit.” A minimum of $25,000 is required, up to a maximum of $40,000. This provides for franchisee financing of all revolving account sales.
Therefore it is my conclusion that, the franchisee does not have the right to profit commensurate with ownership and is therefore not eligible for SBA financial assistance As a result of the CFR conflict, the Franchisor appears to exercise too much control over the Franchisee such that the Franchisor and Franchisee may be considered affiliates and therefore ineligible for SBA financial assistance.
Carmelo E. Burgos, Attorney
Wow!!! Now I understand why Matco lists a TERRITORY in their agreement even though we as Distributors can PROVE there is no such thing as a TERRITORY in Matco’s agreement.
They are lying so they can achieve SBA Loan status. That makes sense now!
Now my question to an Attorney would be if Matco sells the idea, which they do, of having a territory are they obligated to honor a territory agreement per our contracts?
Jerry Marks should know about this already, right. Because what I am reading about why Snap-On can not get SBA Loans is EXACTLY what Matco is doing to their Distributors and can get SBA Loans.
This makes absolutely no sense!
I guess this is the reason Jerry is suing Matco for SBA Loan Fraud!
What sucks is this kind of fraud is nothing compared to what Matco did to my Franchise!!!
Making FALSE SURVEYS!
Lying about doing SURVEYS!
Promising new stops already in your geographical area and then giving those stops to a new Distributor you were forced to surrender shops to who already has 25% more shops than you do and does not have stops in that geographical area!
Being at 100% of the National average after Matco FINALLY gives you what you need to succeed as a Distributor then terminates you based on a separation letter they gave you before they did anything to correct the nature of why you are not at 80% of the National Average.
Threatening a Distributor who has 5 times the inventory and a much larger truck with termination if they don’t surrender shops which were never on a “LOC” but established by YOUR Franchise and approved by YOUR DM who signed you up!
Driving all the way to Stow, OH. to amicably discuss the FALSE TERMINATION you have been FORCED to endure because of a FAILED MANAGEMENT TEAM which has a proven track record of NOT doing things by procedure and lying about surveys and about the actions that as managers they are supposed to perform and DON’T!
Being given an non-viable route to begin with and told that this is the way Matco does business and that it is up to me to establish MORE business! Then steal my customers when I am servicing OVER 95% of my Original non-viable customers as well as 100% of my new customer base which had never gotten service from a Matco Distributor!