Executives From the International Franchise Association, Franchise Brands and Banker, Talk About the $2 Billion Lending Gap and How To Fix It

Jessica SarterSmall Business Lending

Beth Solomon IFA 7-30-12 (2)

Walter is a corporate executive, a SCORE client, and he wishes to remain anonymous. He is starting up a children’s daycare center. Walter needs financing to construct the single-purpose building that the business will occupy. He seeks a U.S. Small Business Administration-backed 504-loan to fund 85 percent to 90 percent of construction cost, furnishings, fixtures and equipment


Walter is transitioning from employment to entrepreneurship and purchased a KLA Schools-branded childcare and learning franchise with a niche position in the growing industry. He e-mailed me a copy of his marketing plan to review and I read about KLA’s brand and its proven system. Furthermore, Walter had saved enough money to provide the required equity.


Even so, the International Franchise Association (IFA) says that currently there is a $2 billion gap in franchise funding since the Great Financial Meltdown that began in 2008 after the collapse of Lehman Brothers. Moreover, as I noted in my blog last week, eliminating the gap could spur the creation of 94 million new jobs.


Accordingly, Beth Solomon, IFA’s vice president of strategic initiatives and industry relations, is seeking solutions. She moderated an online webinar discussing the new paradigm for franchise brands to increase the likelihood that adequate financing will be available for them to sell their units to qualified operators and investors. “In the wake of the financial crisis, as you know, lending to small businesses mostly dried up,” she told her Internet audience during the How Leading Brands Leverage Technology for Financing, webinar.


“We’ve been working on private sector solutions to try to unlock that credit box and give our members access to new tools and solutions for financing,” she said.  The new tools include matching franchise brands and prospective franchisees with lenders online at BoeFly.com.


“BoeFly (is) a strategic alliance partner of the IFA on our credit access campaign,” Solomon said. IFA and BoeFly are “working with regulators and legislators to fix the underlying problems that are causing this slow-down in access to capital for franchising.”


Kevin Ellis, vice president of small business lending at Jacksonville, Fla.-based Atlantic Coast Bank, spoke at the webinar. “We want to understand our borrower’s creditworthiness, but we’re also interested in understanding the brand, the franchiser’s business, their track record.” He is one of over 2,200 lenders seeking borrowers at BoeFly.com.


“BoeFly has been a big part of my success personally,” he said at the webinar. He cited an example of a franchised restaurant startup that he plans to finance in North Carolina.


Ellis saw a brief description of the deal on BoeFly’s website and requested the borrower’s permission to see the complete package. “I was granted access, I was able to propose within a couple of hours, and now I’m moving forward with that borrower,” he told the audience. “The time saved with me being able to download that information and view it all at once is such a time saver.”


Steve Overholser, chief financial officer and treasurer at Great Clips, a hair salon and hair products franchisor also spoke at the webinar. He said that his existing franchisees are expanding and new ones are also starting up. But unlike the days of easy money, “the difference has been rather than 90 percent financing, and even 80 percent financing, (franchisees are currently) able to put together deals that might include 60 or 70 percent financing.”


As a result, he selected BoeFly’s online matchmaking platform in 2010. “We haven’t seen anybody that comes close to the system that BoeFly has established with respect to putting the tools out there and available for the franchisee,” he said. The process is “very transparent from our perspective.”


Meanwhile, Charles Watson, vice president of development at Tropical Smoothie Café, said that his franchise brand has “been proven out over our first 15 years of business (including) the rapid growth that we’ve had.” And even though he continues to experience rapid growth, he is seeing “a correlation of access to capital and the number of deals that can get done.”


In order to keep expanding and provide access to capital for his franchisees, he joined the many other franchise brands that refer their franchisee applicants to Boefly. “The thing that I’ve been most impressed with, with BoeFly and the platform,” he says, “is really the support that they have available, both phone (and) training on the site itself.”


Loan applicants may request real-time coaching and advice from BoeFly’s financing experts about the best way to post their documentation online and when to give lenders permission to gain accesses to their confidential information. “I’ve been very pleased with that,” Watson says.


Mike Rozman, BoeFly’s co-president said, “Over 120 franchise brands have signed up with BoeFly to help their franchisees connect efficiently with a vast network of lenders.” And while it will “ultimately help to drive growth within the franchise sector,” Rozman added that BoeFly’s online marketplace is also closing transactions for most other types of small and medium-sized businesses and commercial real estate investors.


Jerry ChautinJerry Chautin is a former entrepreneur, commercial mortgage banker and business lender. He writes and blogs about business and real estate for several publications and is SBA’s 2006 national “Journalist of the Year.” Jerry is a volunteer business mentor with SCORE, “Mentors to America’s Small Business,” offering free business advice. Post your comments and ask questions on this Blog or send Jerry an e-mail.


Copyright © 2012 Jerry Chautin — All rights reserved.