may be comfortable with, states in the Midwestern as well as for franchisees and Western U.S. While looking for a simpler and his perspective on financfaster process. Additioning growth is that of a large al leverage may be found operator, he says many of with franchisors who have the same disciplines and established relationships practices apply to both with lenders. And some large and small operators seeking funds. banks have special groups or departments specializ“When we begin laying ing in franchise lending, the groundwork for financwhere the loan officers ing, we have a regimen we understand the franchise go through that helps us business model. If you’re Ron Feldman be ready for those initial an experienced multi-unit meetings with our lendoperator, your track record should carry ers,” says Davis, chairman of U.S. Beef, sufficient weight with conventional bank a family-owned business established in loan officers, or perhaps you already have 1969. That regimen covestablished a trusting relationship with ers three areas essential to your own preferred lenders. convincing a lender that Home equity or a securities-backed you’re a trustworthy inline of credit may also be tapped for vestment, even at the size funding, but if you have no experience and stage of a company in business finance, Feldman believes like U.S. Beef. that intermediaries or brokers could be First, says Davis, if useful in securing the growth capital you’re a franchised busiyou’re seeking. ness, understand your As a further alternative, Feldman sug- brand’s potential, the gests looking into the pros and cons of strength of your franchiROBS (Rollovers as Business Startups)—a sor, and the unit economics specialty finance vehicle that allows en- of your brand. trepreneurs to capitalize their business Second, prepare a com- Jeff Davis using funds from their 401(k) or IRA. mentary on the state of your business and Several companies specialize in this why you want to borrow. “We’re very lending niche, with a focus on franchis- aware going in of how this incremental borrowing will help grow ing. However, Feldman our business,” he says. cautions, do not use your local CPA or attorney for And, finally, “Make sure this unless they specialize your financial statements in structuring ROBS, or are current and accurate. you may find yourself in Generally, three years of trouble with the IRS. financial statements will be Regardless of who required.” Aspiring franchiyou are or where you are sees seeking to fund their seeking capital from, says first unit will have to proGiovanna Koning, CFO of vide other evidence of their Falcon Holdings, the largability to repay the loan. est franchisee of Church’s Feldman offers specific Chicken, another imporadvice for these first-timtant factor plays a role in Giovanna Koning ers: have a loan applicaa successful working relationship with tion package that is accurate, complete, a potential lender: familiarity. “Know and that you understand 100 percent. who you are working with,” she says. Your business plan and projections will “You want people who are in the loop, be reviewed in minute detail, and you who are knowledgeable.” must be able to defend them to a bank underwriter. Be prepared If you are borrowing with the help Jeff Davis is Arby’s largest franchisee, with of an SBA guarantee, it’s best to emmore than 365 Arby’s spread across nine brace the process rather than resist it,
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he says, paperwork and all. You will be given a complete financial physical and may be asked to pledge personal assets as collateral. “Those are the rules,” says Feldman, “and they cannot be waived by individual lenders.” Even if you are an experienced franchisee, some of those basic preparations do not change: you must have clear financials and tax returns for your current units ready to present to a potential lender. If there have been unusual expenses or market trends, include explanations with the loan submission up front. Also be sure to include a business plan that not only highlights your current success, but also your plans for future growth. And as you grow your number of units and begin the transition from business operator to business leader, it’s important to highlight your plan for overseeing the continuing success of your existing units as you add new ones. Honesty is best Be ready with specifics that include an explanation of downturns your business may have experienced and how you’ve addressed them, says David Harrison, a multi-unit franchisee of RNR Tire Express & Custom Wheels and the brand’s first area developer. “Have a solid business plan with projections showing your timeline for reducing debt and/or growth that increases your net worth, reducing your debt-to-equity position,” he says. Yaron Goldman has been through the expansion process many times. He’s the CEO of SD Holdings, a franchisee of McAlister’s Deli and MOD Pizza that acquired 64 Sonic Drive-In restaurants last August. He’s also opened his first Fuzzy’s Taco Shop, a brand acquired by NRD Capital in early 2016. SD Holdings’ portfolio now includes more than 100 locations in seven states. “Make sure you have your financials in good order and can easily explain any non-recurring expenses or income,” Goldman says. “This will save a lot of time during the underwriting process.” That willingness to disclose doesn’t change based on how many franchise locations you have. “The only material
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