Snap-on Tools Franchise

Financing Details

Snap-on offers financing programs primarily through its affiliate, Snap-on Credit LLC. Franchisees can finance a substantial portion of their initial investment through the Franchise Finance Program, which has two options: 1. **First Financing Option**: This is a single loan that covers initial license fees, initial inventory, and software license fees. For a Transfer Franchise, certain RA Acquisition costs can also be financed. Interest accrues from the loan's inception, but no payments are required for the first 90 days. Repayment occurs over a term of 10 years minus 90 days, with fixed interest rates typically ranging from 8.56% to 10.99% (as of January 2025). A minimum down payment of $25,000 is usually required, though it can be waived for certain qualified applicants (e.g., current/former employees, veterans, relocating franchisees, or those purchasing an additional franchise). 2. **Second Financing Option**: Available only for initial franchises (not additional, transfer, or renewal franchises, or those receiving discounts), this option consists of two separate loans. A $25,000 bridge loan is offered at a fixed interest rate of 12.99% for 9 months. A second loan covers the balance of the initial fees (initial license fee, initial inventory, and software license fee minus the $25,000 bridge loan amount) at a fixed interest rate typically ranging from 10.56% to 14.99% (as of January 2025), repayable over 10 years minus 9 months. Both loans accrue interest from the business's operation start date. **RA Financing Program**: New franchisees (not renewal) may receive an interest-free credit line up to $85,000 to acquire Revolving Accounts (RAs) from a predecessor or develop new RAs. This credit must be repaid within 9 months. If the amount due is $10,000 or more, Snap-on Credit may finance it through the RA Loan Program, which is interest-bearing and typically amortized over 9 years and 3 months. **Van Lease Program**: Snap-on Credit offers leasing for program-compliant vans. Lease payments are made weekly in advance, with rates varying based on credit assessment (e.g., 8.48% to 10.99% for a 72-month new van lease). A monthly maintenance fee of $325 and a one-time documentation fee of $350 are also charged. Used vans may have different terms, including a higher down payment and a security deposit. **Credit Programs (Extended Credit Program)**: Snap-on Credit provides programs for franchisees to finance customer purchases, granting immediate credit for sales. Franchisees are responsible for collecting customer payments, assisting with repossessions, repurchasing repossessed products, and participating in bad debt losses. An EC Reserve Requirement (0% to 15% of the net cash price) is held by Snap-on for bad debts, and franchisees' share of bad debt losses generally does not exceed 25% (or 100% in cases of fraud). **Open Accounts**: Snap-on may accept assignment of short-term credit sales (30-day or 30-60-90 day terms) to businesses. If a customer fails to pay, the franchisee is charged the unpaid amount. **Security and Guarantee**: All financing is secured by a first security interest in the franchisee's business assets. The principal owner(s) are required to provide a joint and several personal guarantee for all obligations. **Dispute Resolution**: All disputes under financing programs are subject to mandatory arbitration (after mediation) and include a waiver of the right to a jury trial.

Litigation Summary

Snap-on Tools Company LLC has been involved in several legal actions, including both pending and concluded cases. Two cases are currently pending: one filed in Ontario, Canada in June 2019 by a franchisee alleging statutory rescission, breach of fair dealing, misrepresentation, breach of contract, and negligent misrepresentation, which Snap-on Tools of Canada Ltd. is vigorously defending while disputing jurisdiction; and another class action filed in California in December 2021 by former franchisees alleging misclassification as employees and violations of the California Labor Code, which settled in August 2024 for a total of $2,350,000. Concluded litigation includes a class action filed in California in May 2015 by a franchisee, Daniel Jacobson, also alleging employee misclassification and Labor Code violations, which was settled in December 2016 for $138,000 after arbitration was compelled. Another individual and representative action was filed in California in July 2019 by GAP Enterprises and George Nischan, alleging California Franchise Investment Act violations, fraud, conversion, and employee misclassification; this case settled confidentially in March 2020 for $150,000. Jeffrey Hartmann filed a representative action in California in April 2019, similarly alleging employee misclassification, which settled confidentially in November 2020 for $800,000. Lastly, a class action was filed in Wisconsin in June 2022 by John Carmack, a former employee of a Snap-on Incorporated subsidiary, alleging negligence and various violations related to a data security incident; this case was dismissed in May 2023 after a preliminary settlement approval that included identity theft protection, payment to the class representative, attorney fees, and up to $400,000 for valid claims.

Renewal Conditions

To renew the Snap-on franchise agreement, franchisees must notify Snap-on in writing between 9 and 12 months before their initial term expires. They need to meet the current standards for new franchisees, including refurbishing or replacing their franchise van if Snap-on deems it necessary. Franchisees must be in full compliance with all existing agreements with Snap-on and its affiliates, and satisfy all monetary obligations. Additionally, they are required to sign Snap-on's then-current franchise agreement and other ancillary agreements, which may have different terms, including a potentially higher monthly license fee and a 5-year renewal term. A general release of claims against Snap-on and its affiliates must also be executed.

Staffing Notes

Snap-on recommends that franchisees, in addition to acting as their own Store Manager or hiring one, hire and develop one or more employees to help with sales and operations for each franchise they own. For franchisees operating an Additional Franchise, it is mandatory to hire a Store Manager to serve the customers for that business, or the business currently managed by the principal owner. This Store Manager must operate under the franchisee's direct and sole supervision, adhering to all Snap-on Program requirements and the Franchise Agreement. All Store Managers must complete Snap-on Store Management Training. Franchisees are solely responsible for all employment decisions, including recruiting, hiring, scheduling, firing, disciplining employees, and handling all related employment, tax, and insurance matters. Promptly replacing a Store Manager who leaves employment is a franchisee's obligation, as failure to do so could lead to a breach of the Franchise Agreement.