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April 1, 2005 Mr. Gary M. Jackson Assistant Administrator for Size Standards United States Small Business Administration 409 Third Street, SW Mail Code 6530 Washington, DC 20416 RE: Comments/RIN 3245-AF22 Dear Mr. Jackson: The International Franchise Association (IFA) appreciates the opportunity to submit comments regarding the SBA size standards revisions, as codified at 13 CFR Part 121. Background. The IFA was organized in 1960 and is the oldest and largest association representing the franchising community for the purpose of protecting, enhancing and promoting franchising. Our membership includes in excess of 1000 franchisor members and 8000 franchisees that collectively represent a “who’s-who” of American industry. Our members conduct business in over 75 different industry areas – from hotels to quick service restaurants to lawn care and personnel services. The pervasive economic impact and vitality of the franchise method of business in the United States is extensive. In March 2004, the International Franchise Association Educational Foundation released a study that was conducted by PricewaterhouseCoopers, entitled “The Economic Impact of Franchised Business.” Among other things, this study found that: • Franchised businesses directly employ 9,797,000 people in the U.S., about the same number as the U.S. durable goods manufacturing sector. Franchising employment is almost as large as that of the information and ...
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April 1, 2005
Mr. Gary M. Jackson
Assistant Administrator for Size Standards
United States Small Business Administration
409 Third Street, SW
Mail Code 6530
Washington, DC 20416
RE: Comments/
RIN 3245-AF22
Dear Mr. Jackson:
The International Franchise Association (IFA) appreciates the opportunity to
submit comments regarding the SBA size standards revisions, as codified at 13
CFR Part 121.
Background. The IFA was organized in 1960 and is the oldest and largest
association representing the franchising community for the purpose of protecting,
enhancing and promoting franchising. Our membership includes in excess of
1000 franchisor members and 8000 franchisees that collectively represent a
“who’s-who” of American industry. Our members conduct business in over 75
different industry areas – from hotels to quick service restaurants to lawn care
and personnel services. The pervasive economic impact and vitality of the
franchise method of business in the United States is extensive. In March 2004,
the International Franchise Association Educational Foundation released a study
that was conducted by PricewaterhouseCoopers, entitled “The Economic Impact
of Franchised Business.” Among other things, this study found that:
•
Franchised businesses directly employ 9,797,000 people in the U.S.,
about the same number as the U.S. durable goods manufacturing sector.
Franchising employment is almost as large as that of the information and
construction sectors combined.
•
Franchised businesses, in turn, generate jobs for more than 18 million
Americans, about one out of every seven jobs in the private sector in the
U.S.
•
More than 760,000 franchised businesses operate in the U.S., and
generate a total economic output of more than $1.53 trillion – representing
nearly 10 percent of the U.S. private-sector economy.
The IFA commends the SBA for attempting to simplify the process of determining
what constitutes a small business. Franchised businesses, the majority of which
are small businesses, routinely utilize federal and state small business financing
and procurement programs that base their eligibility requirements on these
standards. For example, in 2004, the SBA’s two main loan programs, 7(a) and
504, helped franchise businesses secure 5,281 loans worth $1.4 billion and 576
loans worth $394 million, respectively. The elements that constitute a small
business, whether the numbers of employees, the total receipts for businesses,
or some combination of these factors, need to be clear, fair and reasonable.
Because IFA represents franchisees and franchisors in some 75 very diverse
industries these new standards would have varying degrees of impact on IFA
members. IFA, however, has some specific concerns about the fairness and
adequacy of this new proposal. The following are two examples of how we
believe this proposal will adversely impact two heavily franchised industries:
The Restaurant Industry
Our first concern is with the disproportionately negative impact this proposal has
on the restaurant industry. The SBA proposes to change Full Service and
Limited Service Restaurant standards from its current receipts based criteria of
$6 million annually to an employee based standard of 50 employees. We
believe, however, this fails to take into account the unique aspects of restaurant
human resources policies and business operations, which can differ substantially
from other industries. In the end, thousands of food service providers will lose
their small business status under this proposed standard.
In fact, according to SBA estimates, 16,000 food service businesses will lose
their small business status – the most out of any industry included in this
proposal. Worse, businesses in the restaurant industry, many of them
franchised, account for almost half of all of the businesses the SBA projects to
lose small business status under the new proposal, which IFA believes to be
grossly unfair.
Therefore, IFA proposes that the SBA revise these criteria to compensate for the
unique human resources practices in the restaurant industry, especially the use
of many part-time workers, so that restaurateurs are not squeezed out of SBA
programs.
The Independence Test and the Temporary Help Services Industry
Our second concern is that franchisees be regarded as independent small
businesses and not affiliates of the franchisor. This is a particularly acute
problem for franchisees in the Temporary Help Services industry. In this
industry, the SBA appears to have abandoned its historical view, and now views
franchisees as affiliates rather than independent businesses, due to the
administrative functions that the franchisor typically performs for the franchisee.
However, franchisees are solely responsible for the profits of their business, as
well as all other liabilities, and the day to day functioning of the business. As a
result of the SBA’s view of franchisees as affiliates, franchisees are not eligible
for SBA programs, or other programs that use these size standards as their
qualification criteria, because the franchise system typically exceeds the small
business size standard of 500 employees.
IFA believes this puts franchisees at an unfair disadvantage compared to others
in this industry that are not part of franchise systems.
Therefore, IFA recommends that the SBA change how it views franchisees in the
temporary staffing industry, by implementing criterion for determining if the
franchisee bears the responsibility for profit, responsibility for day-to-day
operations of the business, including hiring, training and terminating employees,
and is the bearer of liability for that business. Moreover, the SBA should deem
franchisees to be independent business people and evaluate their eligibility for
SBA programs based upon this criterion. If SBA chooses not to address
affiliation, then IFA recommends that the standard of 500 employees is
inadequate and needs to be raised significantly to more accurately reflect the
actual size of the entire franchise system.
Thank you for considering our comments concerning the proposed size
standards reform. The IFA looks forward to working with you to address the
concerns we have outlined in this letter. If you have any questions, please feel
free to contact IFA’s Manager of Government Relations, Jessica Bonanno, at
(202) 662-0772 or by email at
Jessica@franchise.org
. She will be happy to
assist you in any way possible.
Sincerely,
John Gay
Vice President, Government Relations
