SAN ANTONIO--(BUSINESS WIRE)--7-Eleven franchisees who received federal Paycheck Protection Program (PPP) loans are at risk of having to repay a material portion of those funds because the company refuses to share internal information on actual rent payments—a key metric necessary to qualify for loan forgiveness. Included in the 7-Eleven Inc. (SEI) franchise agreement is a provision called “the 7-Eleven Charge,” which refers to the payments franchisees make for rent, supplies and other business costs. SEI deducts the Charge from each store’s sales receipts. In some cases, the Charge can exceed 50 percent of a store’s gross margin.
Because SEI has ignored repeated requests to disclose the actual portion that is charged to rent, franchisees cannot enter lease payment amounts in the loan forgiveness application.
“This is another example of how SEI exerts pervasive control over its store operators. Because of the opaque terms in our franchise agreement, 7-Eleven franchisees face the frightening proposition of having to repay PPP loans while other small business owners will be able to have those loans forgiven,” said Jay Singh, Chairman of the National Coalition of Associations of 7-Eleven Franchisees (NCASEF), an elected, independent body that has been calling for greater transparency in its franchisee/franchisor relationship. NCASEF, along with SEI’s appointed CEO Roundtable, have asked the company to provide rent calculations for franchisees, but it has refused.
In a written response to the National Coalition’s request, an SEI representative wrote, “7-Eleven does not allocate which portion of the Charge is attributable to the lease or the other items encompassed by the Charge.”
“We know that SEI has this information readily available. but for reasons known only to the company, it continues to keep that data secret, frustrating the Congressional mandate that rent be included in forgivable PPP loan payments,” said NCASEF General Counsel Eric Karp.
PPP loans were designed to cover eight weeks’ worth of expenses for businesses with fewer than 500 employees. Congress is negotiating changes to the program but, in its current state, loans can be completely forgiven if at least 75 percent of the money is used for payroll, and the remainder for rent, utilities and other non-payroll costs. During the pandemic, franchisees have struggled to retain workers, and some 24-hour stores have been forced to reduce their hours. Many franchisees say it is going to be difficult to reach the 75 percent threshold and, without the ability to prove what they actually pay for rent, franchisees could be forced to repay a portion of their PPP loans.
“SEI has told all franchisees to estimate their rent based on their individual market, but franchisees need the actual value and receipts in order to request loan forgiveness,” said Singh. “The company said it ‘does not intend to undertake the store-by-store analysis that would be needed.’ Given the way they micromanage the business, we find that hard to believe.”
About NCASEF: The National Coalition is a trade association for 7-Eleven franchise operators in the U.S. Originally founded in 1973, NCASEF is comprised of 41 separate independent Franchise Owner Associations collectively having more than 4,400 7-Eleven operators as members.