By JERRY CHAUTIN
Published: Monday, October 21, 2013 at 1:00 a.m. Originally printed in the Herald Tribune
Representatives from the U.S. Small Business Administration were scheduled to make presentations at BoeFly’s Franchise Lending Spotlight Conference in Atlanta on Oct. 7 and 8, but they didn’t show up because of the federal government’s shutdown.
Terri Denison, the agency’s district director for Georgia, and Cassius Butts, its regional administrator, whose territory includes Florida, would have talked about SBA lending for the franchise industry.
The speakers who did attend were executives with franchise brands who explained why making loans to their franchise unit owners is more prudent than lending to non-franchised small businesses. In turn, the lenders at the conference pitched the franchisors, telling them what they look for in a credit-worthy franchisee and franchisor.
Approximately 250 people in business financing and franchise-related industries listened attentively to learn and network with the speakers and other convention-goers.
“The idea is simple,” said Mike Rozman, BoeFly’s co-president. “A select group of franchise brands make substantive presentations to a room full of bankers. Armed with the information, these bankers are better positioned to meet the future financing needs of the brands’ franchisees.”
BoeFly.com is an online matchmaking portal for franchisors, borrowers and lenders to meet and close financing transactions without the traditional relationship-forming ritual that has historically been fundamental to business lending.
The International Franchise Association and the National Association of Development Companies sponsored and helped create the event. The two nonprofit organizations and some of their members also participated in similar BoeFly events in Irvine, Calif. and Boston, Mass. The Atlanta program was the first one in the Southeast.
“Over $100 million a day in SBA loans are not getting to small businesses, so Congress needs to get back to work and open up,” Beth Solomon said of the government shutdown. She is the chief executive of NADCO and was interviewed by Bob Coleman, publisher of the Coleman Report and a speaker at the conference. Solomon said a lot of jobs were being lost and “a lot of people not getting money on Main Street.”
Coleman, who wrote “Money, Money Everywhere But Not a Drop for Main Street,” said lenders have become wiser since the recession and financial meltdown. They also have more resources available to them and use Internet searches to glean information about franchisors who have complaining franchisees and excessive failures.
As examples, he cited the large number of store closures by Quiznos Sandwich Restaurants and Cold Stone Creamery. He also said that Subway’s franchisees are unhappy that their franchisor is requiring them to sell sandwiches for only $5.
Negative information about franchisors is readily available to lenders and will be taken into consideration before making a loan. Of course, positive particulars such as happy franchisees, minimal loan defaults and impressive growth potential are also obtainable online from SBA, industry trade journals and portals such as bluemaumau.org.
NADCO is a trade association for businesses involved in SBA’s 504 loan program, which requires job creation or preservation to get financed. Its members include lenders and SBA-licensed certified development companies that coordinate the financing among the borrower, lender and SBA. The 504 program is ideal for financing fixed assets such as owner-occupied real estate, machinery, furnishings, fixtures and equipment.
IFA, also a trade association, is for franchise brands and industry practitioners. IFA and BoeFly created the IFA/BoeFly Franchise Lending Index to monitor financing trends and take steps to increase small-business lending.
Many of the speakers addressed issues that can help individuals considering buying a franchise. In particular, it was apparent that significant differences exist among franchise brands, and extensive due diligence is a must before buying one.
“Traditionally, financial model, initial training and support after opening are areas to research thoroughly,” says Bob Melberth, a volunteer business mentor with Manasota SCORE and franchise coach with The Entrepreneur’s Source. “We help our clients in the dialogue with the franchisors as well as franchisees of the brand to determine the answers to key concerns.”
If you are investigating a specific franchise, speak to several successful franchisees in addition to others who failed. Ask what they like and dislike about the brand and how much you can expect to earn.
Jerry Chautin is a volunteer with Manasota.SCORE.org, a local nonprofit SBA resource partner offering free business advice and mentoring. He is SBA’s 2006 national “Journalist of the Year” and a former entrepreneur, commercial mortgage banker and business lender. He writes and blogs about business and commercial real estate strategies for several publications and financial organizations nationwide. Contact him with your questions and stories at firstname.lastname@example.org and follow him on Twitter, www.twitter.com/JerryChautin.