[Senate Hearing 117-242] [From the U.S. Government Publishing Office] SMALL BUSINESS FRANCHISING: AN OVERVIEW OF THE INDUSTRY, SBA'S ROLE, AND LEGISLATIVE PROPOSALS ======================================================================= HEARING BEFORE THE COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP of the UNITED STATES SENATE ONE HUNDRED SEVENTEENTH CONGRESS SECOND SESSION __________ MARCH 16, 2022 __________ Printed for the Committee on Small Business and Entrepreneurship [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Available via the World Wide Web: http://www.govinfo.gov ______ U.S. GOVERNMENT PUBLISHING OFFICE 47-361PDF WASHINGTON : 2022 COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP ONE HUNDRED SEVENTEENTH CONGRESS ---------- BENJAMIN L. CARDIN, Maryland, Chairman RAND PAUL, Kentucky, Ranking Member MARIA CANTWELL, Washington MARCO RUBIO, Florida JEANNE SHAHEEN, New Hampshire JAMES E. RISCH, Idaho EDWARD J. MARKEY, Massachusetts TIM SCOTT, South Carolina CORY A. BOOKER, New Jersey JONI ERNST, Iowa CHRISTOPHER A. COONS, Delaware JAMES M. INHOFE, Oklahoma MAZIE HIRONO, Hawaii TODD YOUNG, Indiana TAMMY DUCKWORTH, Illinois JOHN KENNEDY, Louisiana JACKY ROSEN, Nevada JOSH HAWLEY, Missouri JOHN HICKENLOOPER, Colorado ROGER MARSHALL, Kansas Sean Moore, Democratic Staff Director William Henderson, Republican Staff Director C O N T E N T S ---------- Opening Statements Page Cardin, Hon. Benjamin L., Chairman, a U.S. Senator from Maryland. 1 Paul, Hon. Rand, Ranking Member, a U.S. Senator from Kentucky.... 2 Witnesses Panel 1 Cortez Masto, Hon. Catherine, United States Senate, Washington, DC............................................................. 14 Panel 2 Emerson, Mr. Robert W., Huber Hurst Professor of Business Law, University of Florida, Gainesville, FL......................... 19 Yelowitz, Dr. Aaron, Professor of Economics, University of Kentucky, Senior Fellow, Cato Institute, Lexington, KY......... 31 Stapf, Ms. Leanne, Chief Operating Officer, The Cleaning Authority, Columbia, MD........................................ 40 Tipton, Mr. Bryan, Owner, Tipton Investments, Nicholasville, KY.. 52 Alphabetical Listing and Appendix Material Submitted American Association of Franchisees and Dealers Letter dated March 11, 2022.................................. 66 American Hotel and Lodging Association Letter dated March 14, 2022.................................. 68 Asian American Hotel Owners Association Letter dated March 10, 2022.................................. 69 Cardin, Hon. Benjamin L. Opening statement............................................ 1 Clark, Patrick Bloomberg article dated May 14, 2015 ``Franchise Loans Keep Blowing Up, and the Government Keeps Backing Them''........ 70 Coalition of Franchisees Association Letter dated March 15, 2022.................................. 74 Cortez Masto, Catherine, United States Senate Testimony.................................................... 14 Prepared statement........................................... 16 Report dated April 2021 ``Strategies to Improve the Franchise Model: Preventing Unfair and Deceptive Franchise Practices''................................................ 75 Letter dated April 13, 2021.................................. 162 Cortez Masto, Catherine, United States Senate and Warren, Elizabeth, United States Senate Letter dated March 1, 2022................................... 164 Dental Fix RX Letter dated March 13, 2022.................................. 168 Emerson, Mr. Robert W. Testimony.................................................... 19 Prepared statement........................................... 21 Responses to questions submitted by Chairman Cardin and Senator Marshall........................................... 207 Franchisee Advocacy Consulting Letter dated March 24, 2022.................................. 181 Galatte, Michael Statement dated March 6, 2022................................ 191 International Franchise Association Statement dated March 16, 2022............................... 4 Malik, Junaid Letter dated March 14, 2022.................................. 193 Maze, Jonathan Restaurant Business article dated February 10, 2022 ``Burgerim's Growth Had a Notable Enabler: the SBA''....... 194 North American Securities Administrators Association, Inc. Letter dated March 14, 2022.................................. 11 Paul, Hon. Rand Opening statement............................................ 2 Stapf, Ms. Leanne Testimony.................................................... 40 Prepared statement........................................... 42 Responses to questions submitted by Chairman Cardin and Senators Inhofe, Young and Marshall........................ 202 Tipton, Mr. Bryan Testimony.................................................... Prepared statement........................................... 54 Yelowitz, Dr. Aaron Testimony.................................................... 31 Prepared statement........................................... 33 Responses to questions submitted by Senator Young and Senator Marshall................................................... 199 SMALL BUSINESS FRANCHISING: AN OVERVIEW OF THE INDUSTRY, SBA'S ROLE, AND LEGISLATIVE PROPOSALS ---------- WEDNESDAY, MARCH 16, 2022 United States Senate, Committee on Small Business and Entrepreneurship, Washington, DC. The Committee met, pursuant to notice, at 2:32 p.m., via WebEx in Room 301, Russell Senate Office Building, Hon. Benjamin L. Cardin, Chairman of the Committee, presiding. Present: Senators Cardin, Cantwell, Booker, Rosen, Hickenlooper, Paul, Scott, Ernst, Young, Hawley, and Marshall. OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, CHAIRMAN, A U.S. SENATOR FROM MARYLAND Chairman Cardin. The Small Business and Entrepreneurship Committee will come to order. I want to welcome all of our witnesses that are with us today as we take up the franchising business model. I particularly want to welcome our colleague, Senator Catherine Cortez Masto, to the Committee. We will hear from her shortly. Today's hearing will examine the franchising business model, the small business it creates, the role of the Small Business Administration in helping entrepreneurs open franchises, as well as the Agency's role in protecting entrepreneurs from deceptive marketing and bad actors. I also want to thank Senator Cortez Masto for joining us today to discuss legislation that she has proposed to improve how the SBA supports franchisees. The most common franchise business model is when a franchisor, usually a large or growing corporation, provides a business system, training, products, and branding to a franchisee, usually an entrepreneur or an established small business, in exchange for a fee and ongoing royalties. The business model is well known and is practiced by some of the largest companies in the world, including McDonald's, Subway, and UPS Store. When done well, the franchising business model is beneficial for the franchisor, the franchisee, and consumers. Franchisors are able to create efficient and cost effective supply chains while leaving day-to-day operations to the franchisee. The franchising business model can also be used to fuel the expansion of growing businesses. The franchisee is able to skip the startup phase of a small business, such as conducting market research and product development, by buying an established brand and concept. The franchisee is also able to focus on the daily operations of the business while leaving the marketing, advertising, and supply chain management to the franchisor. The consumer gets predictability and guaranteed quality in the products and services they purchase at locations around the world. The benefits of the franchising model are many, but the model has its risks, with the disproportionate amount falling on the franchisee. For example, the franchisor is in control of all relevant information a franchisee needs to access the historical performance and financial strength of the franchise to make informed decisions. This information asymmetry inherent in the relationship can lead itself to bad actors. Recently, I think it was last--a few months ago, Senator Cortez Masto released a report detailing issues in the franchise industry and recommendations for transparency and outcomes for franchisees. As a result, she introduced two bills, S. 1120 and S. 2162. The Small Business Administration Franchise Loan Transparency Act would require the prospective franchise owner to receive accurate historical revenue and store closure information. And the second bill, the SBA Franchise Loan Default Disclosure Act, requires the Small Business Administration to publish default rates for the past decade for each of the franchise brands. Senator Cortez Masto, we look forward to hearing your explanation of these bills and what brought you to these conclusions, and our Committee is very much looking forward to hearing from you in regards to that legislation. I also want to welcome the other witnesses that we have on the second panel. I think this can be an extremely important hearing. 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 a financial ruin. So I am hopeful to learn from all the witnesses about what Congress can do to maintain and improve this successful business model while increasing transparency and protect entrepreneurs chasing the American dream from bad actors and fraudsters. With that, let me turn it over to Senator Paul for his opening comments. OPENING STATEMENT OF HON. RAND PAUL, A U.S. SENATOR FROM KENTUCKY Senator Paul. After borrowing nearly $6 trillion in the last 2 years, is any serious person the least bit surprised that inflation has reached a 40-year high, that gas prices are higher than they have ever been, and that supply chain disruptions persist? You might think that government would change course. You might think that Congress would consider balancing its budget and lowering taxes or repealing burdensome regulations. You might even think that Congress would at least rule out adding more regulatory burdens on small business owners. But you would be wrong. Not one of those things are under consideration today. Instead, demonstrating a remarkable lack of creativity, the legislation under consideration today proposes to solve a problem by spending and regulation with even more spending and regulation. Unsurprisingly, small business owners believe the economy is on the wrong track. The Job Creator Network's monthly Small Business Optimism Index found that small businesses have grown increasingly pessimistic, increasingly pessimistic every month since July 2021. I am sorry to say that they are not going to feel any better after this hearing. Today, this Committee focuses on threatening the franchise model, which has often been credited as a business model that spurs job creation, in fact, one of the more successful business models we have. If our goal is to create an environment where small businesses can thrive, our focus should be cutting regulations and barriers to entry. Rather, we are discussing ways to weaken a business model that has been benefiting customers, workers, and entrepreneurs alike across the country, with a great history. The legislation being discussed today would add more regulations to franchises seeking to obtain SBA loans. The International Franchise Association has stated that these bills attempt to address a problem that does not exist in franchising. Franchisee satisfaction is at an all-time high coming out of the pandemic thanks to the strength of the business model. Adding new government regulations and new government mandates to franchises will, while excluding other types of businesses, arbitrarily pick winners and losers. I ask for unanimous consent to enter the full statement by the IFA into the record. Chairman Cardin. Without objection. [The information referred to follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Senator Paul. In reality, no amount of regulations and disclosures will eliminate the risk in SBA's programs. The best way to avoid risk to taxpayers is to stop forcing them to foot the bill for SBA grants and defaulted loans. As Dr. Yelowitz stated in his written testimony, the SBA's guaranteed lending program cost the taxpayer $25,000 per job. Another report from MIT found that the PPP program cost the taxpayer $224,000 per job saved. Rather than tweaking inefficient and bureaucratic SBA programs, I urge my colleagues to, for once, consider getting out of the way and letting small business flourish. Thank you. Chairman Cardin. Before turning to Senator Cortez Masto, I would ask consent that statements from the North American Security Administrators Association and the International Franchise Association be made part of our record. Without objection. [The information referred to follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chairman Cardin. Senator Cortez Masto, I already mentioned the work that you did leading up to the introduction of these two bills. We thank you for your leadership on this issue and so many other issues, and it is a real pleasure to have you before the Committee. STATEMENT OF HON. CATHERINE CORTEZ MASTO, A U.S. SENATOR FROM NEVADA Senator Cortez Masto. Chairman Cardin, thank you; Ranking Member Paul and to the distinguished members of the Committee, thank you, for the invitation today to testify about the role the Small Business Administration can play in protecting franchisee borrowers from harmful practices in the franchise industry. There are terrific franchise corporations out there that provide opportunities for entrepreneurs to own successful businesses, but there are also franchise corporations that treat entrepreneurs incredibly unfairly. Last year, I released a report detailing how the franchise system has left some entrepreneurs financially devastated. I have heard from Nevadans who have lost their retirement funds, their life savings, and their homes trying to repay loans on unprofitable businesses. Our small business owners do not expect their businesses to be risk-free, but if they purchase a franchise they absolutely deserve to know what they are getting into. Right now, that is not always the case, and the Small Business Administration can do more to fix it. The SBA is the go-to source of funding for many new franchises. My report indicates that franchise loans make up 13 percent of SBA's total loan portfolio. In 2019 alone, SBA guaranteed more than 7,000 loans to franchise owners. Yet, some franchise brands consistently see high default rates, and the SBA Inspector General has repeatedly raised concerns about these high-risk franchises. This is why it matters. If a franchise owner gets an SBA loan for a franchise business that is unprofitable, the franchise owner will oftentimes have to repay the loan from personal assets. That is their savings, their retirement funds, and their homes. If those assets are not enough, the SBA then pays off the loan. This is the guarantee that SBA provides lenders that loan to franchise owners. Those repaid funds are paid for by other small borrowers and sometimes taxpayers. I recommend that the SBA require franchise corporations to share historical financial performance data with the potential franchise owners before the SBA guarantees the loan. It is a simple step that could help investors avoid devastating defaults. Now I have introduced, as the Chairman said, two bills that ensure franchisee borrowers have access to critical historical financial information that they need before they make a decision to move forward. The SBA Franchise Loan Default Disclosure Act requires the SBA to publish default rates by franchise brand over the past decade. Every lender reports to the SBA monthly on loan performance. The SBA can easily make default rates on loans it guarantees publically accessible on its website. Publishing defaults by brand gives entrepreneurs information about the risks that they might face. The second bill I introduced, the SBA Franchise Loan Transparency Act, requires franchise corporations to give accurate historical financial performance information to anyone applying for SBA government-backed loans. Now when I talk with franchise owners, they repeatedly tell me that they did the research before investing. Yet, prospective franchise owners are not getting all of the historical financial performance data that they need to make a decision. Any information they get in the franchise disclosure document is required by law to be accurate, but because some franchise corporations know that everything in the FDD has to be accurate they can leave out key pieces of financial performance information. Instead, they may give that information to franchise owners outside the FDD, and they can present it an overly rosy or an inaccurate way. So my bill requires the franchise corporations to provide specific historical performance data in the FDD so that borrowers can make an informed decision about the risks that they face. People buy franchises because they want to invest in a business that has proven successful. You are going to hear that today from one of your panelists. Only brands willing to share revenue data on how their franchises have performed in the past should earn the privilege of having their investors receive SBA guaranteed loans. In that sense, my bills sets a standard for franchise corporations. Now although I have introduced bills to make these changes, let me make it very clear that the Small Business Administration has the power to take these steps on its own. And so while franchises are wonderful business opportunities for hardworking Nevadans and they are wonderful business opportunities across the country, we need to do more to ensure that all franchise owners have that experience. The SBA should not be guaranteeing high risk loans. So I want to thank the Committee for taking this subject up. I look forward to working with the various members of the Committee and the Chair and Ranking Member and thank you again for holding this hearing. [The prepared statement of Senator Cortez Masto follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chairman Cardin. Well, Senator, thank you for your work on this area and also for your testimony here today. It is hard to generalize. I agree that franchises are an extremely important part of entrepreneurship and it has been a very successful model, business model. It seems to me that the requirements in your two bills--if we were to categorize those franchises that have been most successful, they comply with those requirements. They are already making that information available to potential franchisees. So it seems to me what your bill is doing is establishing best practices in the field in an effort to make sure that the concept of franchising maintains a standard that will allow it to grow in the future. So I applaud you and the legislation. Are there any questions by members of the Committee for Senator Cortez Masto? [No audible response.] Chairman Cardin. If not, thank you very much for your testimony. Appreciate it. Senator Cortez Masto. Thank you. Chairman Cardin. We will now go to our second panel. We have testifying virtually, Professor Robert Emerson, and he is the Huber Hurst Professor of Business Law at the University of Florida. He has authored several business law textbooks and written several dozen law journal articles, book chapters, and other works on franchise law. He has led research symposia on franchising and taught franchise and distribution law at universities and institutions throughout North America and Europe. We will then hear from Aaron Yelowitz. Dr. Aaron Yelowitz is a professor in the Department of Economics at the University of Kentucky, a senior fellow with the Cato Institute, and a research fellow with the Institute of Labor Economics. He has taught graduate classes in public economics and health economics and undergraduate classes on health economics, labor economics, housing economics, and poverty and welfare programs. We will then hear from Leanne Stapf, Chief Operating Officer of The Cleaning Authority, Columbia, Maryland. Leanne Stapf has been the Chief Operating Officer of The Cleaning Authority since 2012, working to build and enhance the infrastructure to support franchisees. She is also a franchisee of a location of The Cleaning Authority in Harrisburg, Pennsylvania. The company's franchises provide regular cleaning services to over 100,000 customers. Now lastly, we will hear from Mr. Bryan Tipton, owner of Tipton Investments in Nicholasville, Kentucky. He has been an Arby's franchisee since 2008 and also owns a residential rental company. Mr. Tipton works in the operations of his restaurant. Mr. Tipton grew up in Richmond, Kentucky, working in the fast food industry and attended Eastern Kentucky University before pursuing restaurant management. We will start first with Professor Emerson, virtually. I would ask each of you to--your full statements will be made part of our record. If you could summarize in about five minutes, we would appreciate that. Professor Emerson. STATEMENT OF ROBERT W. EMERSON, HUBER HURST PROFESSOR OF BUSINESS LAW, UNIVERSITY OF FLORIDA, GAINESVILLE, FL Mr. Emerson. Thank you. Chairman Cardin, Ranking Member Paul, distinguished Committee members, I am honored to be invited to this hearing. I grew up not far from the Capitol in Silver Spring and wish I could be there in person. This morning, I watched the incredibly moving speech before Congress of President Zelenskyy, and I will be the first person to acknowledge that my thoughts on franchising obviously do not matter much compared to something as epic as that. Still, as I thought about Ukraine's heroic fight for freedom and democracy, I thought of how franchising is a kind of marketplace democracy. As a model for business based on free choice, good governance, transparency, and a certain measure of democratic norms, much should be expected of franchising, and the best run franchisors generally do quite well, yet not at the expense of franchisees. They are really all in it together. Many franchisees have benefited very much from becoming part of a franchise network family, but other franchisees have been hurt tremendously. To some degree, these franchisees can, and no doubt often do, blame themselves for not steering away from what turned out to be a fateful choice to purchase a franchise, but those mistakes are so predictable. Just as we do not know who exactly will be injured due to poor designs or manufacturing but we can predict that there will be significant numbers who are injured, so we can look at how some franchise systems operate and how some franchise prospects will proceed, and it all so predictable that people will be hurt. So there are norms in that franchisees should have a number of freedoms that a written term in a FDD or a franchise agreement cannot deny, freedoms such as to go to court to assert a claim based directly on the FTC rule, to freely associate and exchange information with other franchisees without any fear of retaliation, to be able to introduce in court the statements made to them by franchisor representatives despite a parol evidence rule or waivers or nonreliance defenses. A norm of good franchise system governance should be that franchisors are bound by the reasonable expectations of all the parties concerned, including franchisees, whenever operations manuals may be used or require expensive changes to the system. Perhaps most of all, and this is really more on regulators and the franchising community as a whole, the mountain of information that is available to prospective franchisees needs to be more readily accessible, in a highly useful format, for easy tabulation and comparison of FDD data from various franchisors or even across industries. In my research, I have gathered hundreds of FDDs and put them in somewhat surgical files for my use. But when you need to put in time to do that, well, it really does help to have tenure. Prospective franchisees do not have that time and may understandably feel as if they are being hosed down by a fire hydrant of documents, disclosures, and disclaimers. Exhaustion, information overload may lead them to decide to abstain from some choices that they really should make. So I do endorse S. 1120 and certainly agree with the motives behind S. 2162, but the FTC, the SBA, the NASAA, the IFA, and probably some other acronyms certainly could work to make the data much more user-friendly. That would be good for everyone. The data out there is really a set of collective experiences, and when we look at those experiences, you could say that franchise systems are all feeding off of experience, what a franchise network builds upon. There is always more for us to learn, and thus, I hope I am one person for whom the old quip does not apply: You can always tell a Harvard man, but you cannot tell him much. [The prepared statement of Mr. Emerson follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chairman Cardin. Professor, thank you for your testimony. We appreciate it very much. Dr. Yelowitz. STATEMENT OF AARON YELOWITZ, Ph.D., PROFESSOR OF ECONOMICS, UNIVERSITY OF KENTUCKY, SENIOR FELLOW, CATO INSTITUTE, LEXINGTON, KY Dr. Yelowitz. Chairman Cardin, Ranking Member Paul, and members of the Committee, thank you for the honor of participating in today's hearing. My name is Aaron Yelowitz, and I serve as a Professor of Economics at University of Kentucky and a Senior Fellow at Cato Institute. The franchising model, which allows aspiring entrepreneurs to adopt a proven business model while avoiding many of the mistakes associated with a new business, impacts 730,000 establishments and 8.4 million workers in the United States. Although many people associate franchising with fast food, there are thousands of brands across 300 business lines. From entry into markets to jobs and wages to the use of SBA loans, emerging evidence shows that the conditions franchisees operate under are not substantively different than small, independent business owners. Singling out franchising for additional regulation will make the franchising model less viable, in turn, leading to less competition and higher consumer prices at a time when inflation is already at 40-year highs. The degree to which the Federal Government should be involved in regulating private businesses and subsidizing business loans is a legitimate question, especially with high taxpayer costs per jobs created, but singling out franchises is unwarranted. Proposals to further regulate franchise disclosure that are solely confined to the SBA are misplaced. Franchise sales and disclosure is heavily regulated by the FTC, which administers the FTC Franchise Rule requiring disclosure in 23 areas. Given the paucity of data on franchising, Oxford Economics surveyed more than 4,000 franchisees and published a comprehensive study in 2021. Oxford found franchising offers a path to entrepreneurship but is especially valuable for new entrepreneurs, veterans, minorities, and women. Some popular books describe franchising as running a business with training wheels. Franchisors provide training wheels to keep new franchisees balanced until they can pedal on their own. This view is confirmed in the study. Thirty-two percent of respondents report they would not own a business without the franchising model. Without this model, 223,000 establishments employing some 1.8 million workers would not exist. Franchisees value the franchisors' support in areas where an entrepreneur running a small, independent business would likely make mistakes. Intuitively, many business owners would not have gone down that uncertain path without such support. Critics of franchising often focus on the wages and labor violations. Oxford compared wage levels and growth for new hires at franchises and independent businesses. Wages and wage growth were virtually the same for new hires with no more than a 13-cent difference in any of the first 20 months of employment. SBA loans account for about 1 percent of all small business loans. A recent study links SBA loans to businesses. The loans did encourage job growth. However, the taxpayer costs from charge-offs in administration range from $21,580 to $25,450 per job created while the jobs themselves paid about $30,000 per year on average. Business lending is important to franchisees. The Oxford study finds that 21 percent of respondents report being capital constrained when starting their first franchise business. Critics have expressed concern about default rates. I have analyzed SBA loans from fiscal year 2010 onward based on franchise status, essentially a comparison of franchisees and independent businesses. Among 7(a) and 504 loans, about 10 percent went to franchisees. As time lapses from when a loan originates, charge-off rates increase although the charge-off rate for 2020 through 2022 may be misleading because of debt relief forbearance from the CARES Act. In my view, there are very modest differences in charge- offs. In most years, the difference in charge-offs between franchisees and independent businesses is statistically insignificant. For example, in fiscal year 2010, 7.8 percent of franchisees' SBA 7(a) loans were charged-off, slightly lower than the 8 percent for independent businesses. For the 504 loan program, charge-offs were nearly the same after 2011. The SBA data does not support the characterization of franchise loan charge-offs as anything out of the ordinary. Rather than being squeezed by corporate franchisors to commit wage violations or default on loans, the data paints a picture of franchisees performing much like small, independent businesses. Small businesses promote competition. Some recent proposals would impose new burdens on the franchisor-franchisee relationship, which is private and voluntary. The proposed PRO Act will codify an expanded joint employer standard. The so called ``ABC test'' in the PRO Act could potentially classify franchisees as employees of their brand instead of small businesses, which in reality they are. Both provisions would ultimately lead to fewer franchise establishments in the marketplace. Such proposals that interfere with the existing franchisor-franchisee relationship run the risk of raising consumer prices even further. Thank you. [The prepared statement of Dr. Yelowitz follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chairman Cardin. Thank you very much for your testimony. Leanne Stapf. STATEMENT OF LEANNE STAPF, CHIEF OPERATING OFFICER, THE CLEANING AUTHORITY, COLUMBIA, MD Ms. Stapf. Chairman Cardin, Ranking Member Paul, and distinguished members of the Committee, my name is Leanne Stapf, and I serve as Chief Operating Officer and franchise owner of The Cleaning Authority, and I live in Columbia, Maryland. Thank you so much for this invitation. I am really jazzed to be here. I am both a franchisor and a franchisee, and I appear before you today on behalf of the International Franchise Association. In our view, at this stage of the economic recovery, the state of franchising has never been stronger. While our businesses need more workers, today franchisee satisfaction has never been higher. According to Franchise Business Review, 88 percent of franchise owners say they enjoy operating their business. Franchises have led the economic recovery with the highest growth rate since we have been tracking the data, reaching nearly 775,000 total franchise establishments in 2021 and achieving an astounding 16.3 percent growth in output. Mr. Chairman, franchising remains the ultimate hybrid business model between standalone small businesses and big corporations, and this model continues to empower people from all backgrounds to achieve their dream of business ownership more than any other format in America. I have seen firsthand how franchising can change lives and change communities. Franchising democratizes business ownership for people of all backgrounds. To be clear, I would not own a business if it were not for franchising, and according to recent research by Oxford Economics, 32 percent of all franchise owners report they would not own a business if they were not a franchisee. This proportion is even greater among both female owners and owners for whom a franchise was their first business. Franchising also boasts a higher ownership rate by people of color than among non-franchise businesses. There are just so many of us that have that entrepreneurial spirit but do not necessarily have the expertise to really be efficient at all aspects of running the business, and the franchise offers us that. That structure, that framework, that is going to save us massive amounts of time, money, and frustration. I came into franchising after starting my career in computer programming. I was looking for the next step in my career and ready for a lifestyle change that allowed me to be with my family more, and I found a job description matching my technical expertise that came up for The Cleaning Authority, and soon after I was hooked. I am so proud of what The Cleaning Authority has accomplished for more than 200 communities we operate in. Through our TCA Cares--this was a program designed by franchise owners and facilitated by the franchisor--we have had 12 food drives, collecting over 1 million pounds of food equal to 894,000 meals to over 600 food banks within our communities. Last year, our first coat and outerwear drive, we saw almost 10,000 articles of clothing donated. We also award ten $1,000 scholarships each year to employees and their dependents of The Cleaning Authority to align with our mission to positively impact the quality of life of the people we employ. But our story is not unique. The Oxford Economics research referenced in the testimony showed that some 65 percent of franchise owners gave to local charities and they donated a total of $1.5 billion to charities last year. In addition, franchise owners purchase significant percentage of their inputs from local suppliers, thus contributing to their local economies through their supply chains. Without franchise small businesses, if franchises were replaced by big corporations on Main Street, all of this community investment goes away. Chairman Cardin, thank you so much for holding today's hearing. I want to close by noting that IFA is very supportive of SBA loan programs. These loan programs are essential to giving opportunity to those who may not have access to capital. IFA is also very supportive of the FTC Franchise Rule, which provides the guidelines for the disclosure of the majority of data franchise brands provide to empower franchise owners. And finally, you might have heard an old saying: If you want to go fast, go alone. If you want to go far, go together. So I believe America needs to go far, and I believe we need to go together. And I believe we can do it by keeping franchising alive and well. We hope Senators will continue to support the franchise businesses in the State, and I would be happy to answer any questions you may have. Thank you. [The prepared statement of Ms. Stapf follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chairman Cardin. Well, thank you very much for your testimony. Mr. Tipton. STATEMENT OF BRYAN TIPTON, OWNER, TIPTON INVESTMENTS, NICHOLASVILLE, KY Mr. Tipton. Chairman Cardin, Ranking Member Paul, and members of the Committee, I would like to thank you for having me here today for this hearing. My name is Bryan Tipton, and I have been in the restaurant and bar business my entire adult life. I am now a proud fast food franchisee and I have been for many years. I hope that my experience can be of benefit to this meeting today. I would like to start by saying that when I pursued a franchise I knew that before I ever opened the door of a restaurant that I would have in my particular brand at least 50 years of experience at my fingertips. As it turned out, I was right. I also knew that I would have buying power and support that I would have never had on my own. And as a group, we can advertise and promote our company in ways otherwise unimaginable. Even before the pandemic, the restaurant business has been a very tough business. Everyone knows that lately it has been even tougher since the pandemic. It is a retail business that in most cases is over 16 hours a day with strict regulations, health codes from every health department and city and county in America. As a franchisee of a large restaurant group, I can tell you there is already a lot of oversight, paperwork, reporting, et cetera, required to the franchisor, and my process with my franchisor was extremely transparent. The legislation discussed today seems to be addressing a problem that does not exist. I just cannot imagine adding more red tape to it and with government regulations and oversight. It would only add to the cost of franchising at a time when franchising is helping navigate an already difficult business environment. I just do not see the need. I would also like to mention that in the beginning of the pandemic there was a lot of uncertainty. Many, if not all, business owners were very scared and unaware of the future, especially restaurant businesses. A lot of restaurant owners took PPP assistance, but I think now we are seeing terrible consequences of this program and a lot of other government giveaways, and now what we thought would help is hurting us in a big way. I did not take a second PPP or a Restaurant Revitalization Grant, and if I had it to do over again, I would not have taken PPP. Because of these programs, there are record levels of inflation and the biggest labor problem in my career. Industrywide, in almost everywhere in this country, they have seen the same problems since the beginning of the pandemic-- unemployment due to stimulus. There have been good intentions, but I certainly do not think that more government intervention is going to fix it now. Restaurants have been resilient, and if they are not making it now, there is likely other reasons for it. Additional grant funding or government-backed loans will only further the inflation problem. The government needs to get out of the way of business owners. At the same time, the taxpayers taking on risky business loans is not an answer either. Most small business owners' needs, including my own, can be met in the private lending market. More red tape to navigate, on the other hand, is the last thing that my business or any other small business needs right now. Thank you. [The prepared statement of Mr. Tipton follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Senator Paul [presiding]. Thank you all on the panel for your testimony. Professor Yelowitz, President Biden and others have argued that corporate greed causes inflation. Biden quotes 17 economists to also argue that Build Back Better, a couple trillion dollars' worth of deficit spending, will reduce inflation. Speaker Pelosi recently blames inflation on low unemployment. I was wondering if you could give us a little review, a little Economics 101, on what actually causes inflation. Dr. Yelowitz. Well, I am not a macroeconomist, so I will say that off the bat. But basically, when supply and demand are out of whack, then prices will adjust. And in the labor market, for example, we see a worker shortage, wages are rising, businesses are competing for workers, yet not being able to get them even without, for example, higher minimum wages. And so in a sense, prices adjust. They are a market signal that basically says something about scarcity, and that is likely what is going on now. We just have all sorts of interruptions in the economy, and that probably is what is causing the higher prices that we are seeing. Senator Paul. Do you think deficit spending, increasing deficit spending, makes inflation less or more? Dr. Yelowitz. It certainly would increase it. Senator Paul. Mr. Tipton, we have been talking some about business loans, government involvement, but there are many other factors of life and what government either does to you, for you, or against you that affects how your business--how well your business succeeds. In 2017, we passed a tax reduction, letting business owners keep more of what they earned. Did you see any effect in your business? Did the tax rates allow you to expand any in your business? Mr. Tipton. Yes. Obviously, when there is more going in the pocket of the business owner, they have more capital to grow and spend. In my company, we enjoyed that benefit then. Senator Paul. I have no further questions. I thought somebody just came in, but, no. We will wait for one moment, and the Chairman will be back, and we will have some more questions in just a moment. [Pause.] Senator Paul. While we are waiting, I do have another question for Mr. Tipton. Your experience as a franchisee and dealing with a franchise, you know, with a parent company--do you see it in your experience as being adversarial, or do you see that your interests are aligned between the franchisee and the franchisor, or do you see it as a relationship that works or a relationship that needs the government to be involved in a bigger way? Mr. Tipton. Well, certainly do not need the government involved. My process with my franchisor was very transparent, and the relationship is very good. It was good then, and it is good now and always has been. I have been through the process with more than one national brand, and it was the same. It was very good, very transparent. As a matter of fact, both were so transparent that there was a lot, a lot of information, a lot, a lot to take in. Nothing was left out. Senator Paul. So I guess you get the benefits of the name of the restaurant chain that drives customers in. You get benefits of cheaper cost of goods. I guess you get food and supplies for the restaurants come through a purchasing agreement with the parent company. Is there also availability of credit through the company as well as far as borrowing? Mr. Tipton. I am not sure. I have never used the company for financing. I have always--that has always been done in private banking industry. And if--in my opinion, if you are doing the right stuff, that is not going to a problem. Senator Paul. So you did not utilize small business loans in starting yours? You utilized just the private banks and banking system? Mr. Tipton. No. And I do not understand why--I do not understand why you would. If you are doing the right thing, the private banking industry is going to be there. Senator Paul. Well, the difference also is that there is a feedback loop. If you borrow from government and government puts out a thousand bad loans, who is going to replace the people in government and say they are not doing a good job? If you live in Richmond, Kentucky, and your bank does a thousand bad loans, my guess is that way before you get to a thousand somebody loses their job or the bank goes out of business or you have to have, you know, some sort of feedback loop. And this is essentially the difference between government and private sector and one reason why many of us will argue that the private sector, unless it absolutely is not working, that we should really try to do almost everything within the private sector because you have that feedback loop that breeds excellence, and that is basically the profit motive. Mr. Tipton. I would also say that if you cannot get financing through the private sector and you need to go to SBA, then you are not--obviously, you are not doing something right anyway. Senator Paul. Thank you. Senator Ernst. Senator Ernst. Thank you, Mr. Chair, and thanks for the witnesses for coming in front of us today for this hearing. The franchising model system has provided so many with the opportunity to independently run a small business. We see this all across Iowa, and as part of my 99-county tour, I have heard from many of those franchise owners throughout my State. These franchising opportunities are providing entrepreneurs with a proven business model, a recognizable brand that offers a built-in customer base, and the potential for fast growth. In Iowa, franchises contribute $4.1 billion to the economy and over 95,400 jobs. These small businesses, like all other small businesses throughout the country, are vital to the economy. That is why I am so excited to have the opportunity today to discuss the role that the SBA, the Small Business Administration, plays in small business franchising as a whole. So if we could start with you, Dr. Yelowitz, I appreciate you coming in today to discuss these small business franchises. In your testimony, you had mentioned that SBA loans were a strong contributor to job growth by providing access to capital for our small businesses. How can SBA lending programs be better utilized for job creation and wage growth, especially in the areas like mine, our very rural areas? Dr. Yelowitz. Basically, SBA loans, the studies that I have reviewed show that there is some job growth from those loans. On average, around 3 to 3.5 jobs are created per million dollars of loan. Those studies do not distinguish between franchises versus independent businesses, and so probably my biggest take would be to not single out franchises for any different kind of regulation than for any other sort of business. Senator Ernst. No, thank you. We just know how important it is to have access to those loans and certainly to promote job creation and wage growth. Now in your testimony, you also mentioned protecting the Protecting the Right to Organize Act or the PRO Act, which would codify into law an expanded joint employer standard, where franchisers can be held responsible for actions taken by their franchisees. You say that this would essentially eliminate the entire concept of franchising as a business model. Can you talk about the effects that that the joint employer standard would have on small businesses and our consumers as well? Dr. Yelowitz. The PRO Act has several provisions in it, the joint employer standard and the so-called ``ABC test,'' which will raise the cost of doing business in terms of the franchisor-franchisee relationship. If it increases costs, then what will likely happen is that there will be fewer franchises out there. That, in turn, will lead to less competition. And as we know, less competition will lead to price increases in an economy where we already have as high of inflation as we have seen in 40 years. Senator Ernst. Right. Yes, thank you so much. I know it is extremely concerning to so many across the State of Iowa and I am sure in many other areas as well. And, Mr. Tipton, thanks again for appearing in front of us. In your testimony, you had mentioned how record levels of inflation caused by Federal spending is impacting small business supply chains. Inflation has created a hidden value- added tax on producers, and the Producer Price Index reached 10 percent over the last year this month. And can you talk a little more about the impact that inflation has had on producers and what that means for prices facing our consumers? Mr. Tipton. Well, it has affected every part of the business, every part of the supply chain. In my brand, we have seen increases on every single part of the company, from all supplies, everything from fuel cost, extras, you name it. Across the board, there has been increases in everything. And that has led to across-the-board price increases from the brand to the consumer, which we have already implemented one price increase just a few weeks ago and will likely see more at this rate. Senator Ernst. Yes, I would agree. Now for all of our witnesses as well, with the cost of doing business for our small businesses and our franchisees, do you see this as being transitory? And if it is not transitory, at what point do we ever bring those costs back down, and how does that happen? Mr. Tipton. Well, I do not know if I know the answer to that, but I do know that usually, as we all know, when prices go up, a lot of times they do not come down. And I am a little fearful of that because the inflation numbers that we have seen have taken a lot of profit out. You know, we tried to eat a lot of this to stay competitive. A lot of fast foods brands were trying to do that, but it was just too much. Still had to raise prices. And we are still--you know, profit margins are far less today than they were this same time last year. Senator Ernst. Thank you. Any other panelists? Mr. Emerson. Yes, I would like to say I think the costs are transitory. I mean, things go up; things go down. And I think that some of the concerns about the PRO Act are overstated. I think that a lot of the issues arising out of a concern about the gig economy are justified, and there are questions of how it would actually be implemented to try and accommodate the fact that we are in a much different era than we were even 10 or 20 years ago. But to reflexively, in effect, say this is going to kill franchising is, I think, overblown. I believe that a lot of the concern has been generated by, of course, what is going on in one or two states and one or two provisions, or at least suggested provisions, which may need to be tweaked. But to not recognize that the economy is not the same and that franchisees are, in some systems--or would-be franchisees, depending on how you classify them--are in a different position than sort of the old fashioned standard. So whether you call them an employee--or in one of my articles I talk about them as dependent contractors, not independent contractors--can vary. A lot of the issue really for the systems on a macro level, I think, is that some franchise systems are doing very well, their franchisees are doing well because of that and they justifiably, as Mr. Tipton clearly is, are proud to be and happy to be in a system, but I am concerned that the ones that are not doing that well are actually sort of a drag on franchising generally. I mean, that is what led to the first real legislation in America, in California and other states, was the history of problems in the 1960s, early 1970s, with people that were basically churning franchises. And I am not saying that is happening in most systems, but clearly what Senator Cortez Masto was referring to in some franchise network systems was such a thing. So I do not see how the proposed bills really would necessarily have a dramatic impact on a cost. I think a lot of the work that is being done to furnish data is already cooked into the system and it is just a question of doing it more effectively. It is not so much there is too much information. There is a lot of information. But it is just that the accessibility of it is not that easily available. And that is why I use the metaphor of a fire hydrant or something just spewing out all this information, but it is not really that well organized. And a lot of prospective franchisees throw their hands and say, well, I think I feel comfortable. And it really should not be like that. They should have better access to the information. And as I understand it, a lot of franchisors are in favor of that. They do not have a problem with that information---- Senator Ernst. Thank you. I want to offer the opportunity to other panelists as well. Thank you. Mr. Emerson. Yes, I understand. Thank you. Senator Ernst. Yes, please. Dr. Yelowitz. One thing that I think will be important to emphasize is that you spoke about some of the provisions from the PRO Act, which is quite a bit different than information disclosure. And what I would point out about information disclosure is there are thousands of brands out there that compete with each other in terms of providing information, and those that are providing transparent products will find more takers. So I think the market as a whole, the private market, will in a sense solve many of these issues. And there might be stories about one of two brands, but there are thousands of brands out there. And remembering that this regulation does not only affect the one or two brands, or several brands, where there are these stories, but all brands is something really important to consider. And again, your question about joint employer, about the ABC test, those sorts of things, feels quite a bit different than the information disclosures. Senator Ernst. Very good. Thank you. Well, I will yield back my time. Thank you very much. Thank you, Mr. Chair. Chairman Cardin [presiding]. Thank you. As I hope was explained, there are votes that are going on. So I went over to cast my vote. I am sorry I missed some of your comments. There will be a second vote on in about 20 or 25 minutes from now, but we are going to try to continue the hearing. I just really want to respond briefly to some of the comments that have been made in regards to inflation, cost, and small businesses. Ms. Stapf, I appreciate your acknowledgment in your written testimony as to the importance of the PPP program to keep businesses afloat. The PPP program was created by bipartisan leadership in the U.S. Congress. I was proud the role that the Small Business Committee played, working with Senator Rubio, Senator Collins, Senator Shaheen, and myself in drafting the Paycheck Protection Program. And then in the American Rescue Plan, we fine-tuned it so that we could really tailor it to the small businesses that needed it the most. And the statistics from 2021 indicate that we were able to get to the smaller small businesses, to those in underserved communities, that we were able to get to those that were so desperate. And your observations are similar to the observations that I have received in going through my small business community. On Small Business Saturday, I was in Annapolis visiting small business owners who told me, literally, they would not be open today but for the help they got in regards to the small business aid programs as a result of the Coronavirus packages. So I just want to dispel the concept that what we did to help small businesses and keep them alive, keep our economy moving, prevent from going into a deep recession is not why we have high prices today. High prices are a result of many factors, including a supply chain challenge in which one of our colleagues, Senator Cantwell, has worked on legislation to innovate and manufacture here in America, that we are going to be going to conference as a bipartisan bill to try to deal with supply chain issues, that will deal with some of our challenges on cost as well as some of our workforce challenges, for example, the cost of childcare, keeping too many women particularly out of the workplace. So we have a game plan to deal with the cost centers, but I just really do not want to blame the help that we have given to small businesses as anything other than helping our economy survive the greatest pandemic in a hundred years. And I am proud of the work that we did, near unanimous. We had a few members of the Senate who disagreed with the program, but by and large, this has been a collective effort in order to keep our economy moving during the Coronavirus. So I want to get back to the franchise issue because I do think the franchise model is a critically important model for our economy, and I recognize that. I have recognized it from the beginning. But it does have certain vulnerabilities because of, in cases, the contractual relationship between the franchisor and the franchisee. So if I might, Professor Emerson, start with your view, you said favorable things about the need for certain congressional action in order to deal with making information available to potential franchisees. Could you elaborate as to where you think the greatest priority should be placed in providing information to a franchisee? We know that the legislation deals with financial information and failures, et cetera, but where do you think there is need for more definitive regulation? [No audible response.] Chairman Cardin. You are on mute, I think, Professor. We still cannot hear you. Mr. Emerson. Okay. Chairman Cardin. We hear you now. Mr. Emerson. I am unmuted now? Chairman Cardin. Yes, you are Okay. Mr. Emerson. I knew that would happen. Now I think that the biggest problem, as I have said, really is there is a lot of information out there. And a lot of it--I think if franchisees, prospective franchisees, put in the time they can get better information. But the ability to compare to other franchises that they may be looking at, to cross into other industries and look at them, to kind of evaluate their costs, not being franchised but otherwise investing in some other opportunity, is very difficult for them to do because of the way that the data is just sort of presented. And I think in time this will probably become easier for people to handle, but anything that can be done by the FTC, the IFA, the SBA or others, or could be facilitated by an act of Congress to make that data available would be very useful. I think that that is one reason I think S. 1120 could be so helpful is what it might provide in terms of the ability to give that more data to prospective franchisees. A lot of the things I outlined in my written statement are more problems substantively, I think, in terms of some of the things in a franchise agreement or the procedures for dealing with them. And anything at the FTC level or the SBA level that could give more information to franchisees about what it is they are dealing with would be good. But for now, I do not think Congress has really shown that much inclination going into substantive mode. If Congress wanted an act on franchising, that would be entirely a different matter. Chairman Cardin. Thank you. Ms. Stapf, you can give us a unique perspective, both as a franchisor and a franchisee. So tell us what information is the most useful to have available to a potential franchisee in deciding whether to move forward with the business opportunity? Ms. Stapf. Yes, thanks. Yes, outside of the leadership and the history of the brand, I think the Item 19 is obviously very important for prospective franchise owners. I also believe that Item 19 is the next best place to start because that will allow a prospective franchise owner to see the health of the brand, openings and closures, and then be able to have full access to all of the other franchise owners and then can conduct their due diligence. So those are the two areas of the FDD. Chairman Cardin. So let me turn to how the SBA can be helpful to a franchisee. In what areas do you think the SBA could improve its ability to help franchisees in making decisions on franchise agreements or to be able to operate as a franchisee? Ms. Stapf. Yes, so I think that the SBA directory might be a good place to start. So this was in conjunction with the IFA was formed, and it set criteria with the SBA. And one way that we could make--one thing that we can look at is maybe expanding that criteria. Chairman Cardin. And in regards to the financial tools that are available through the SBA, from the numbers we are looking at, it looks like there is a pretty active use by franchises of the tools at the SBA for financing. Do you have any suggestions as to where you think the priorities should be? We have the 7(a) program, obviously. We have the smaller programs such as the microloan programs. We have the 504 program and refinancing. Is there a particular challenge that you see in any of those tools that we could fine-tune to help franchise owners? Ms. Stapf. Well, I am honored that you would ask that. So just in my personal experience, traditionally a lot of our franchise owners use the express loan, and that has been just a bit of a challenge from a time perspective. I do not know if it is a backlog from PPP loans or what have you or the fact that we are a low-dollar loan because we do not have assets. We are a service brand. But we find that it is taking a considerable amount of time before our franchise owners get funded for their express loans. Chairman Cardin. We do find a general problem in regards to the loan programs at the SBA, that those that are smaller in dollar amount generally are not the priority of private financial institutions. They like larger loans, generally. They can do one loan rather than have to do three for the same number of dollars. They would rather just do one loan. So we do find a challenge in regards to the smaller amounts of loans, for the smaller numbers. I take it that in the franchise world you have large franchisees and you have small franchisees. So you have different ones that qualify for the SBA programs. That is one of the reasons why there is under consideration today the direct lending program by the SBA so that there would be no disadvantaged on the size of the loan that is being requested under the 7(a) program. There is also proposals to deal with the cost of the 7(a) loans, recognizing that for smaller companies that cost issue can become an obstacle for getting a loan. Your observations seems to indicate that the smaller the loan it can be more challenging to get the attention of a private bank? Ms. Stapf. Certainly, that is my observation. You know, I do not have obviously the proof of that, but I do feel that our loans are just taking an enormous amount of time where other more asset-heavy franchise systems are getting their loans quicker. So that would be great for us. Chairman Cardin. I would be glad to hear from any of the other panelists if you want to make some additional comments. We have the time. So, Mr. Tipton, do you want to add anything to the discussion. Mr. Tipton. Just off of what she just said, I do not know. I do not have the numbers or anything either, but maybe the loans may take longer because of the fact that they are no- asset loans. Maybe the due diligence in that is different. I do not know. Chairman Cardin. Professor Yelowitz, in regards to franchise businesses, are there particular challenges that you find in regards to the SBA tools that are available? Dr. Yelowitz. I think that Ms. Stapf and Mr. Tipton, being business owners themselves, probably are more expert on that. So I do not think that that is my wheelhouse. Chairman Cardin. Okay. Professor Emerson? Mr. Emerson. I would tend to agree with Professor Yelowitz. The only thing I would add is my concern--and I cannot verify this--is information that is privy to the SBA in terms of the guarantee function, or lenders, but not available to the franchisee, the prospective franchisee itself, in terms of arranging for the loan to be approved. And that strikes me as, at least from an angle of equity, problematic. And there is at least people that think that that is a problem, certainly when you look at what Senator Cortez Masto's office filed. The information at least that franchisors are imparting information to help sales prospects get a loan but not providing that information to the franchisees, under some cloak of confidentiality, would be very troubling to me. Chairman Cardin. That is an important point. You know, that is one of--we are going to be in conversations with the SBA on some of these issues and try to work with them. I think much of this can be done administratively, as has been pointed out. So we will be working directly with the SBA to see whether we cannot deal with some of these issues through their practices. And I agree with Professor Emerson. There is a lot of information out there, but if you are just starting a franchise business, you do not have deep pockets. You do not have a lot of people on payroll to be able to delve through all this information. It has got to be made available in a useful way. And it is hard enough now to get through all of the requirements to get the loans and everything together to start a business. You do not have the resources to try to wade through all this information and go through all this challenge in order to be able to move forward. We have to find an easier way to get this information available to potential franchisees. So I think your point is very, very well taken. Mr. Tipton. Chairman, I was just going to mention also, it was mentioned earlier about disclosure. Beyond--and in my experience with my franchisor, beyond all of the disclosure statements, we were encouraged to go talk to other franchisees all over, everywhere, all over the country. So I just wanted to mention that, too, that that was a big benefit in my start. Chairman Cardin. I think that is excellent advice. My experience is that, again, the successful franchise brands want that to take place. That is why they are successful. They want to make sure it is the right fit for the franchisee, and talking to other franchisees can be extremely helpful to know what you are getting into and make sure that is what you really want to do. So I think that is really good advice. And I am going to agree with many of the panelists that a lot of this is just common sense type information we have got to get out there to make a decision. It may already be out there. It is just hard to find, and we need to facilitate. One of the things I have learned about the SBA and where it is most valuable and the resource partners that work with small businesses is that the more mentoring, the more technical help, the more connections that can be made through the SBA services, the more successful a young business is going to be. So any connections that we can make in that regard, including connecting with other franchisees before a potential franchisee makes a decision, is going to be helpful. So I appreciate that advice. Let me thank again all four of our witnesses. This has been extremely helpful. We will be following up, and we may be contacting you to help us as we go through this field. The record will remain open for two weeks. And with that, the Committee will stand adjourned, with our thanks. [Whereupon, at 3:46 p.m., the Committee was adjourned.] APPENDIX MATERIAL SUBMITTED [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]