Exploring the Bank Credit Report

Jessica SarterSmall Business Lending

exploring the bank credit report

Transcript:

Mike Rozman:
Because of the large audience today, we’re gonna start just a few minutes after 2:00. So, bear with us as your fellow audience members make their way to log in. Hi everyone. This is Mike Rozman, and we’re just gonna take one more minute before we start the program. We have a large audience; we want to make sure everyone is able to properly sign in. So bear with us for one more moment. Thank you. Hi everyone. This is Mike Rozman at BoeFly, and we’re just about to begin the program. To get us started, I’m gonna ask Beth Solomon of the International Franchise Association to make an opening comment. So Beth, thank you for joining us today.

Beth Solomon:
Well thank you, Mike, and thanks everyone for being here. The IFA is delighted to be a part of this webinar today. It’s a very important webinar, and I’m delighted to see so many people signed up and participating. Credit access is the number one issue for franchising; it certainly has been, and our credit access campaign launched about a year ago to help our industry access the capital that it needs to grow. We’re very pleased to say that this year, the campaign is going to focus on some specific tools and solutions that are available to improve access to capital and indeed, to move our industry forward as an asset class that attracts capital. To do that, we partnered with BoeFly, and we are identifying with them tools and solutions such as _____ bank credit reports that are available tools and solutions to expand credit access, and position franchising as a very attractive ____ to invest. So, thanks very much for being here today. Thank you Mike for hosting this webinar, and we’re delighted to be a part of it today.

Mike Rozman:
That’s great. Thanks for those comments, Beth, and we’re very excited at BoeFly to have this alliance with the IFA as a way to help increase access to financing for the franchise market. Again, just to introduce myself, my name is Mike Rozman at BoeFly. BoeFly is the online marketplace that connects more than 100 franchise brands to most efficiently connect their franchisees with a network of more than 2,000 lenders. I’d love to start by giving a special welcome to our BoeFly members – those franchisors and lenders alike. We’re proud to have you as clients and happy to build this program for you. Also, a special welcome to IFA members who are joining us as part of that IFA credit access campaign. Quick housekeeping item: this session will be recorded, and we’ll send out an e-mail after the session with a link to the recording. Please submit questions throughout our call, and we’ll handle them at the end of the program. Also, to gain insight from the more than 250 franchise executives and lenders in our audience today, and not just our panelists, we’ll be asking you to respond to poll questions, and we’ll share those results in real-time. Because we have two core audiences, franchisors and lenders, we’ll be directing questions to each group.

This session will focus on a core aspect of franchise finance, and to begin with, we see business financing as a path. A borrower must properly be prepared to seek financing, they must connect and engage with lenders that are a match for their specific needs, and stay away from lenders that aren’t a fit. Lenders, for their part, must have access to all the information to underwrite the borrower; and for franchise loans, lenders need to underwrite the brand. BoeFly was established to help borrowers and lenders best navigate this path.

Lenders, as we’ll hear, look at a number of factors to understand the brand. In our opinion, bank credit reports are solving a huge portion of this brand underwriting through an independently prepared comparative analysis report. Because of BoeFly, we have visibility in the lenders and borrowers meeting we can see firsthand that there’s widespread adoption of the BCR in the franchise community, to the benefit of lenders, but also for the brand to more fully understand their own position from a credit risk perspective. In fact, we think it’s so important that we recommend that our BoeFly members become clients and users of the BCR, and we’re happy to announce that these members, through our special relationship with FRANdata, can secure BCR at a discount.

During this session, we’re hearing from top franchisors and lenders who will be giving their perspective on the bank credit report. Let me take a minute to share their names: Jeff Moran of CiCi’s Pizza, Susan Wise of Kiddie Academy, Grayson Brown of Tasti D-Lite; and on the lender side, we have Brian Myers of Chase, Janell Anderson of First Niagara, and Tip Spata of Spirit of Texas Bank. And, to get us started, I’d like to start with Darrell Johnson, who we’re pleased to have us – join us today. Darrell is CEO of FRANdata. And Darrell, get us started, and share your views of the bank credit report.

Darrell Johnson:
Well thanks, Mike. I’ll give you a three minute history of the bank credit report, which should give perspective to ___ and demand today, and how it’s being used. In the easier credit access base prior to 2008, FRANdata worked with some of the more active and experienced franchise lenders to conduct credit analysis of franchise brands. It was during that time, and with their help, that we honed the content and performance metrics that led to a BCR. After the credit crisis of 2008, virtually all lenders in franchising became more focus on credit risk issues, and that’s when it became important to underwrite not just the franchisee, but brand itself. We can all relate to how little information was necessary to get a home mortgage prior to 2008, and how much information, and how much underwriting banks do now. Well, the same thing holds true for small business lending. Today, you must prove that your brand, as well as your franchisee is creditworthy, and BCR does that.

Lenders know that franchise system’s performance history is a great predictor of future performance. Again, performance history is an indicator of future performance. Prior to 2008, it was usually enough for most lenders to look at a SBA data, to look at an FDD – even though lenders knew that the SBA data was quite flawed, and the FDD contained little in the way of real credit information. But because lenders were not having much in the way of losses, it was sufficient to use those as a proxy for good underwriting. Sometimes we just need to step back and apply a little common sense to what is going on now, and if neither the FDD or the BCR existed today, and you sat down to try and explain to a lender what your franchise system’s performance is in banking terms, and from their perspective what the risks are, what would you put together? Well, that’s what we did when we sat down and used that as the basis of which we built a BCR.

Today, we know more information is needed, and a BCR was developed with lender help to address a brand’s performance history and do it from a lender’s perspective, and it continues to evolve. Recently, we added some franchisee compliance analysis as a good short-term predictor of stress in a franchises. BCR looks at a detailed analysis of unit, system, and franchisor performance, and does it in the context of other brands so that the metrics, and the analysis that’s used can be put in context. A BCR puts weeks of franchise due diligence in the hands of banks who are not constrained by either the FTC or by FDD limitations, and this analysis of a brand’s performance history gives a better prediction of their future performance. And if you have better predictive power, you have access to more credit. For franchisors with good performance characteristics, having an analysis produced from a banking perspective, and objectively done, attracts more money, and attracts it in a more favorable terms. If the franchisors with credit risk issues – and candidly, most franchise systems have had credit risk issues because of what the economy has handed to us over the last few years – well, from a lender’s perspective, it’s trying to understand what those credit risk issues are, know whether the franchisor understands them, and knows what they’re doing about them. And that’s what a BCR does, and if it’s appropriate, then the BCR will allow a management to put in their own words what they’re doing about the issues that might be surfaced in it, and we can put that separately in an appendix.

In both cases, the result is the same, and that is: if you have better information and better banking analysis, you’ll have more credit. BCRs exist because they work. We’re getting over 200 requests a month from lenders, and that number is rising each and every month.

Mike Rozman:
That’s a great job. Thank you for that perspective. And as I shared before: at BoeFly, we see lenders engaging with brands, and we see them accessing those bank credit reports. So, let’s shift. Let’s bring in some perspective from our franchisors. I’m gonna ask Susan from Kiddie Academy to get us rolling here. When you were thinking about bringing in the bank credit report, tell us who in your business was involved in that decision to make that happen?

Susan Wise:
Sure, Mike. We actually had a dual push from our office in the development and sales departments. Really, we’re looking for it in terms of how they could get better applicants coming in. And also, we used it in my department in accounting ‘cause that’s where we look for assisting our franchisees with financing. So, between the two of our departments, we really pushed to put it together, and worked with FRANdata to get it developed.

Mike Rozman:
I appreciate that, Susan. So, Grayson at Tasti D-Lite and Planet Smoothie, what about your brands? Who was involved in making this happen?

Grayson Brown:
Thanks Mike for giving me the opportunity to speak on this panel. I appreciate everybody wanting to listen to general counsel. The BCR was, for us, part of the necessary pain to be able to relieve the credit crisis that we were seeing across the board. It was absolutely driven by development. We saw it as a tool that could assist development. ____________ assist development. We weren’t gonna do it. And so, for us, the development part of it led the drive, and then we embraced the solution for growth, and helped them set an expectation that we could use it to create that predictive power that Darrell talked about for us. We’ve been around since 1986, but we started franchising in 2008. So it was critical for us to be able to tell these lenders about our history, as well as demonstrate to them that we were not a credit risk. Because we have been around for a while, and we needed something to tell that story, and the bank credit report helped us do that.

Mike Rozman:
I appreciate that. And Jeff, just to round out on this and make sure everyone – we’re hearing from all the brands. What about at CiCi’s? Can you give us some insight as far as who was involved in helping get the bank credit report up and running?

Jeff Moran:
Sure, we had our compliance department involved heavily, and of course the financing department, myself, and our CFO – spent a fair amount of time making sure, and then our development – what we call DSG, development service group, pretty much led it, but everybody had a strong hand in it.

Mike Rozman:
Okay great. I appreciate that. So, once the brand decided to move forward and you needed to start interacting with FRANdata – Grayson, can you give us some perspective on the way it worked for your brand? How did you get them that information, and what information were you providing?

Grayson Brown:
Absolutely. It was more than just what was information that was in our FDD that we needed to provide to give the language that we felt the bankers needed. As we see it, every profession has a different language, whether you’re a lawyer, or a doctor, or a banker. You like to speak certain language. So, it was critical that we’d be able to provide this information. So, our development team provided, really, our industry and our history information about the brands. Our CFO really provided the metrics – the financial metrics that were needed to go in that document, ‘cause we did provide really what would be an earnings claim, or a finance performance representation of our company centers in that document. And then from a legal front, of course, I was reviewing everything and involved in understanding what was going in that document, and the way I viewed it was what I call the stand up in court test – is: could I one day stand up and share this information and know that it was accurate, and that everything we were putting in there was accurate and was setting up proper expectations? Because even though, yes, ____ going to a lender, I want to make sure that proper expectation was set from the lender’s point of view, ‘cause that’s something we have to live with going forward.

Mike Rozman:
That’s helpful. And from that general counsel perspective, I know we actually have a number of general counsels that are on – in the audience today. Did you engage it out – outside counsel to bring – to kind of run this to ground, or it simply stayed in house – this decision?

Grayson Brown:
Great question. I did run past bank credit report through our counsel and outside. They thought about it, really in a strategic, 30,000 foot overview level. So that was something that I did have a conversation with our outside legal counsel, but it was mostly driven internally in the review process, and what it ultimately ended up looking like. But I put it past what I would call the smell-test for outside counsel to make sure I wasn’t walking into a black hole.

Mike Rozman:
Yep. That’s helpful. And Susan, the actual process from a protocol standpoint of getting this data over to FRANdata. How did that work within your brand? How did you get that information over to them, and who was involved in it?

Susan Wise:
For our process here – what we sued was VP of our sales department actually gathered the majority of the data in terms of the brand in our 30 year history in doing the child care industry. I provided the financial metrics that FRANdata needed in order to create the report, and then the other, we also would look at it, make sure it encompassed everything that we wanted to put into our report.

Mike Rozman:
Give me some perspective, Susan, on the timing. How much can you ballpark how much of an investment of time it was to brand – to get this information? Is it something you had readily available?

Susan Wise:
It was the information that we had readily available. Now, we created our first BCR three years ago, and we’re currently in the process of revising it now. This time around, it didn’t take us more than two weeks just to provide the data necessary. FRANdata has a report they actually send out to us that just listed all the information that we needed to put together, and it was very simplified in their report. It was easy to gather the data, and it was also something that we currently also measure a lot of our franchise units with the metrics in-house. So we had all of this data available for them.

Mike Rozman:
Okay, thanks. And Darrell, we just heard from Susan that they first had a bank credit report constructed three years ago, and they’re going through the renewal process now. What are your recommendations when a brand signs up? What should be their expectation of when they would want to renew that information – would you have for us on that?

Darrell Johnson:
Well, yes, I can give you a – my years of experience as a banker. Bankers are good at looking in the rearview mirror. They want to understand what happened in the past as a precursor to what might happen in the future, and they want to look at the most recent 12 months, ‘cause that’s what they’re in – in a typical approval pattern for. The shelf life of a BCR, from the time it’s produced, is somewhere between 12 and 18 months, and it really depends on the fiscal year and the cutoff, versus when the report is done as to how much time is available for that to really be effective in the marketplace. But it generally ranges between about 12 and 18 months.

Mike Rozman:
We’re gonna explore this idea of this peer group. So, we heard from Darrell – this is a comparative analysis. A brand has a bank credit report produced on them that’s gonna be compared with a brand. Can you give us some perspective on the brands that are kind of your peer group – when you learned about the peers that you were labeled against, were there any feedback that you had from – to FRANdata? Tell us about that process in establishing a peer group.

Jeff Moran:
We didn’t – I’m not sure how to answer that. We worked with them on the peer group of what was appropriate. We were comfortable with who we’re compared against. It was appropriate. So, that went very smoothly for us.

Mike Rozman:
Okay, good. And Susan, tell us about your process with the peer group identification.

Susan Wise:
Sure. We actually provided FRANdata with our direct competitors in the child care industry. And what FRANdata did then was added some additional child industry aspects like computer or karate that weren’t really our direct competitor, but could be considered peer for other reasons. Some of those reasons had to do with the size of the associations of the unit, and also the _____. So, we didn’t really have any issues with competitor groups that FRANdata selected for us. We felt it was encompassing of a good – a variety of child industries that would be comparable to ours.

Mike Rozman:
Okay, good. Darrell, do you want to add anything on the peer group process?

Darrell Johnson:
The only thing I would add there, Mike, is that the peer group varies not just by the brand we’re looking at, but by the risk parameter that we’re assessing under a particular risk element. For instance, at the unit performance level, given the investment level and the characteristics of the investment level of a particular brand, it may apply equally well to brands that are not even in that same sector. But because of the type of investment and characteristics of those investments, knowing the unit performance outcomes, it’s fair to compare it to brands that would not be perceived as direct competitors. On the other hand, some topics are clearly more properly evaluated against direct competitors. So, the peer group varies a little bit even inside the document.

Mike Rozman:
And when you’re looking at peer group, and you’re doing that analysis, it would seem that you’re comparing a brand – let’s say with Kiddie Academy. Kiddie Academy has gone through this process, they’ve shared accounting data with you, and then you’re going to establish a peer benchmarking process to compare them with their peers, and those peers – by definition – maybe haven’t engaged you, and haven’t shared that level of additional detail. What are your thoughts on that, and what perspectives do you have to share with that?

Darrell Johnson:
Well, first of all, and it’s a great question, Mike. First of all, to be very clear, any information that is shared with us from a particular brand is never revealed to any other brand. So, if we do a BCR for Kiddie Academy, and then we do one for another brand, we never directly expose any individual data from one brand to another. So, it’s sensitive, it’s confidential, and we treat it as such. Having said that, we have a deep enough database of BCRs and of other project data and information – we’ve been in business for a long time – we have a pretty rich database of comparative information that we can use on particular risk elements. Some areas – and I mentioned earlier when I explained the BCR that we talked just about compliance – that’s something that we added relatively recently, and we don’t have ______ databases, but some things we do have a substantial amount of information that we can use, and we show it in ways that it compares a particular brand against a range, not against individual other brands.

Mike Rozman:
So we’re not making our way down the path. The brand is sharing information with FRANdata, FRANdata’s done their peer group analysis, and now the report is prepared, and it’s being distributed back to the brand. Grayson, when you received the bank credit report, what did management do with it, and how did you look at it, and what were your next steps?

Grayson Brown:
Great question. We invested senior officer time in reviewing the bank credit report. We sat down with our chief operating officer, our chief financial officer, and myself – VP of development, and we worked through the document literally word by word. We came out with what I call a punch-sheet of some changes that we would like changed. Some of them may have been – this wasn’t portrayed in the right light, and we just need to clarify, and it had just been a communication problem on our part. And when we provided FRANdata the information and how it provided it – and so again, going back to that expectation in ensuring that our expectation was set properly, to the audience, who was going to be the lenders and bankers. And so, lastly, the other thing we put together was what we called a management letter. And really, for us, the management letter can be used for several purposes. But for us, it was more of a sales tool than anything to really set the tone of what the banker was going to read. And so, it really gave a background statement that shows we cared. It shows that we took time to do this, and this is important to us. And so, we did invest some significant time in doing that, and FRANdata was very good to work with. Our comments – doesn’t mean they didn’t agree with every comment or not, or change, but they did work with us on those, and it worked out to be a great report. We renewed it last September, and so having gone through it twice now, it does become an easier process once you’ve been through it more than once. And then you get to tweak it better going back to peer group. We were able to add some peer groups in there that otherwise weren’t captured that we wanted to capture. So it just becomes a better process as you go.

Mike Rozman:
Jeff with CiCi’s, do you have any perspectives to share as far as what management’s response was after receiving the BCR, and did you share back comments with FRANdata?

Jeff Moran:
Yes. I’m sure. The development services group – our chief development officer – reviewed it thoroughly. He’d been involved in the prep, so just confirming that everything did come through as we expected, and pretty much everybody in the franchising department had a good look at it. So, they’ll be involved in talking with lenders and talking with potential franchisees. So, it got a good – we had done so much work upfront in the preps, I know that it was just more confirming and that it was as we expected.

Mike Rozman:
So Darrell, we heard from a couple brands that they shared comments back with you. Tell us how that process works, and also on this idea of a management letter that we heard Grayson comment on. Did you have a high percentage of brands that include those, and what are your thoughts on that?

Darrell Johnson:
Well, the management letter’s purpose is to put a clear separation or distinction between our objectives in independent analysis that goes into the body of the report, and allow the management team of the franchisor if they choose to provide comments and perspective – particularly around, I’d say, a credit issue that comes up that this is what we recognize, this is what we’re doing about it. So they can put it in their own words. But we separate that, and put that in the appendix. The frequency of use of that is not particularly high. A small minority of franchisors will actually put a management letter in there, but it’s entirely up to them to choose to do so. However, a very high percentage of franchisors will give us comments back on the final draft, and those comments we take seriously, but we don’t accept without us making a judgment as to whether they are appropriate or not. ‘Cause we’re not doing anyone any favors if we step back away from our objectivity and independence.

Mike Rozman:
And Darrell, you commented that the brands would go ahead and give comments back to you and you’re not gonna accept them without meaningfully understanding how it impacts your overall independent assessment. Are you aware of any brands who, after that review process, and after that iterative process, have decided to put that BCR on the shelf and not share it with lenders?

Darrell Johnson:
That’s happened a few times, yes. Where that has been – still have a good outcome – is it gave a clear message to those franchisors: this is what’s important from a credit risk perspective, and this is how lenders are assessing risk. ____ is not about failed units, or the item 20 information that goes in there. This is how franchisors are dealing with and supporting their franchisees. It goes much beyond just the simple inaccurate SBA statistics and trying to get at that. So, having the ability to analyze that – and understand it – is something that is the first stop for a franchisor to say, “Now we know how to address it.” As an example, a franchisor that’s had a number of problems with franchisees, a logical question from a lender standpoint is: what is your posture in workouts? What do you do? Do you have any position with regard to what the lender is wanting to do, and do you have a role in that? Understanding that is very helpful from a lending standpoint. Those are the kinds of things that become useful even if a franchisor says, “Yeah, this doesn’t make us look very pretty.” But it gives us a path towards gaining access to capital.

Mike Rozman:
Okay good. Thanks Darrell. Let’s shift. Now, we have this BCR ready, it’s in the hands of the franchisor, they have an end product, their comments are accounted for. How do you get it out there? Susan, can you share your views on how Kiddie Academy gets this in the hands of lenders, and how do you want to leverage it?

Susan Wise:
Sure. We actually are a BoeFly member, so the BCR is available on all our deals that get posted to BoeFly. So, when a lender is granted access to one of our Kiddie Academy deals, BoeFly – they not only see the franchisees information, but they also see our BCR, along with our FDD and some other documents that we have. One of the things that – we liked doing it using BoeFly’s technology. It’s locked down so only the lender can see the file. We don’t have to worry about franchisees being able to see that BCR. One of the other things that we typically do with our BCR: we were hesitant in the beginning, like Darrell had indicated, to send it out to lenders. We realized after we first started sending it out what the value that we got out of it. And even though it wasn’t in the best light in terms of certain aspects in our report regarding some closed locations or things like that, the lenders really looked at it in a different view in terms of the overall credit risk. They found so much valuable information in that, we started using it with more and more lenders, and saw that we were getting a positive response from all of those lenders when they saw the report. We then took it another step further, and we actually shared the BCR with our real-estate developers and landlords that are working with our franchisees on either existing space, or on purchases of land where they can build the facility for our childcare centers. Those real-estate developers were utilizing that BCR in a method that we didn’t consider in the beginning, ‘cause they’re also looking at the overall risk of the childcare industry or the brand in general. That really helped us move forward with development of additional sites with the real-estate developers.

Mike Rozman:
Great. A whole new market for you, Darrell – not just lenders, but also real-estate developers. Grayson, what about your brands? How do you get the bank credit report out there, and what’s your protocols there?

Grayson Brown:
Absolutely. As a member of BoeFly, everything that Susan has said – we have the same technology, the same access to portals – so when somebody’s approved on BoeFly, they can access all of our information, our BCR and our other documents, as well as they can access it – banks can make the request through FRANdata on their new portal. But we really control – we also have some preferred lenders that we’ve used in the past, and we really control the distribution of that document quite stringently. So that only goes out through the CFO, and only to his office. And so, if somebody makes a request, that’s something that he sends out, and we document, and we’re very careful to send it out. We do see it being a very powerful tool to our lenders because maybe unlike some franchisors, we don’t make an item 19, so it has helped us tremendously in building those preferred lender relationships for them to understand the unit economics of our units, and so it’s been a great tool, but we do – I am very stringent on who gets that document, and where it goes, and how it’s sent.

Mike Rozman:
And just to clear – kind of a point of clarification – we’ve heard from Susan and Grayson that they’re leveraging BoeFly for that, and just on Grayson’s last point there, when a lender accesses the BCR through BoeFly, they do accept a clickable NDA which is specifically written in mind of the BCR. Jeff, I just want to kind of close this piece out with you, and then we’re gonna put our audience on the hot seat for a second with a poll question. But Jeff, do you – are there any points to add as far as how you’re distributing it? And I just want to hear directly – the BCR – is it ever made available to your franchisees in any way?

Jeff Moran:
We do not make it available to our franchisees. We distribute it through BoeFly. We’re a little more wide open on the distribution than Grayson is, but I do want to comment – I think it was useful – the preparation part of the BCR. It just was very useful to us to force us to look at those – I mean, force us to spend time looking at those numbers and work on through that, considering how we appear to a lender. I think getting a little attention to those areas was a good thing.

Mike Rozman:
Great, well thank you for that, Jeff. So, we’re gonna shift now to our first poll question. Before we do, I just wanna give a little bit of perspective on who’s on our call, and it actually is a straight split of franchisors and lenders, with another 14 percent making up additional constituents focused on franchise finance, and we do have a lot of, I believe, attorneys on the line, as well as other service providers. But I want to get to our first poll question for our franchisors, and think of this not just about your specific brand, but the mark as a whole. Do you think it’s the responsibility of the franchisor to support the franchisee in accessing capital? Let’s get a simple yes or no on that, and we will publish those results in real-time. We’ll monitor – and again, we’re just asking franchisors to respond to this right now. I think you go back maybe before the credit crisis, certainly tight selection, certainly marketing operations – and I don’t know if the financing support was a headline issue. It looks like our votes are just about in, I’ll give it another ten seconds. Those of you franchisors that haven’t voted yet – just take your final chance. All right, I’m gonna go ahead and publish those results right now. And sure. Overwhelmingly, we see 91 percent believe that it is the franchisor’s responsibility to support franchisees in accessing capital. And again, I don’t know if the response would’ve been the same if we went back five to seven years ago. I heard this message very clearly articulated at the IFA’s financial summit by Shelly Sun is that financing is a franchisor problem, not a franchisee problem. I think, obviously, the folks that are on this call think that same way. So we’re gonna go back to – we’re gonna shift the topic now. We’re gonna put our bankers on the hot seat. You guys have gotten off easy so far. I want to start with you, Brian from Chase. Before we deeply dive in to the BCR itself, share some of those key elements that you look for to understand the brand – kind of set the table for us.

Brian Myers:
Well, obviously, thanks Mike, first off. First and foremost, our primary focus is obviously underwriting the borrower. We’ve gotta make sure that the borrower is someone who is _____, but at the same time, a part of being prudent is also understanding that brand, right? And so, when we take a look at that BCR, we’re looking at how long the brand has been franchising, what support do they add to the franchisee, and that support means in training, and obviously in challenging economic times, we want to know how that brand is doing financially. So, the BCR offers us a great deal of information that helps us, again, underwrite the entire deal, and understand the entire deal, beyond the borrower, but also the support that the franchisor offers.

Mike Rozman:
Great. Thanks Brian. Janell, thanks for joining us today. As an SBA lender, tell us what you’re thinking about just generally in evaluating that brand before we get into specifics of the BCR. Janell, if you’re on, you may be on mute. All right, we’re gonna take a close look to make sure that Janell is still on the line. But Tip, you’re gonna get a chance to clean up that question for Janell. What are your thoughts on those key elements that you’re looking for as it relates to franchising? And this is in advance of us hitting on the BCR.

Tip Spata:
Right. I echo a lot of the same thoughts that Brian had. ______, things like that. We look and see if the franchisor is selective, or if they do any kind of prescreening process with their franchisees. Do they offer continuous training and support? How do they stack up against the – their industry and competition, and things like that. All those things we – as well as, we occasionally try to contact existing franchisees to see – kind of get any firsthand experiences to – what they feel the experience was – was like, and how realistic maybe projections are, and how the franchisor works with the franchisee – how closely they work together. And so we take all of that into consideration.

Mike Rozman:
And Janell, are you able to – are we able to hear you Janell? Okay. So Tip, I want to stay with you. And just functionally, how do you get your hands on a BCR? So let’s say you meet a new franchise borrower, and you say – you want to look at a BCR. Tell us about that process.

Tip Spata:
Well, to get a – for us to get a BCR, we were introduced actually through – it was one of our – ______ my CFO actually was the one who sent me a copy and said, “Take a look at this. This is really interesting.” And so, I’ve been in touch with FRANdata to try and get our hands on as many BCR reports as possible, because it’s really a useful tool in not only underwriting new loans with new franchises, but it also helps with us – I’m in servicing, and so we’re really focusing on franchise reviews for existing loans on the books, and just getting an idea of the franchises we finance, or even look to finance as we look for potential franchises to kind of diversify the portfolio.

Mike Rozman:
So I just want to echo those comments, and particularly for our lenders on. So, we just heard from Tip that he’s certainly using it as an evaluation tool to help make a better yes-no decision. He’s using it as a marketing tool to get a handle on what brands he may want to be seeking out to do business with, but also as a servicing tool as a way to continue to monitor his ongoing portfolio. Brian at Chase, are you guys using it beyond the underwriting process today in the same way we heard from Tip?

Brian Myers:
We do. I mean, our first focus, and I think we continue to season ourselves as far as how we use it, because it’s gotten such information in it. But we do have a library, per se, of bank credit reports that we will hang onto and use as a resource, again, not only as we underwrite a deal, but also just to help us understand that particular brand a little bit better.

Mike Rozman:
Okay. And we are starting to get some questions in. All of our audience members, you can send in your questions, and we’re gonna try to incorporate those in the conversation, and we’ll also segregate time at the end of the call for questions. Brian, I’ll stay with you on this questions, and it looks like Janell – before you go, Brian, Janell, can we hear you?

Janell Anderson:
Can you hear me now?

Mike Rozman:
We can. Thanks, Janell, and thanks for your patience of working through that technical issue. Janell, here’s a thought – or a question that came in from another lender. We heard from Tip that he’s sourcing the bank credit report through FRANdata. We heard from some brands that they presented through BoeFly. If a banker were to receive, or if you were to receive a BCR directly from a franchisor, would it cause you to think about it a little bit differently, or once you see the BCR stance, you’re comfortable?

Janell Anderson:
I think once we see it, we’re gonna be – depending on the information – we’re likely to be more comfortable. I just think it takes a lot of the guess work out of a startup operation. At that point, you might know that something’s a startup, but you can almost view it as an expansion of an existing brand. There’s just banker ____ information. We’re happy with some historical results, as you’ve said before.

Mike Rozman:
And Darrell, kind of on that point, I don’t think any – and again, this was their way the question was presented was: is there any concern about the data in the BCR being shifted or altered if it’s coming from a brand, or not directly from FRANdata, or from – through BoeFly? Is there any comments – have you ever heard that question before?

Darrell Johnson:
I haven’t heard the question, but I think, maybe, it’s not so much with something altered as – what is the right path for this? A bank credit report – we have a service mark on it, we’re about to get a trademark on it. We include what is effectively an opinion letter on the front of it that is on our letterhead. So the combination of it coming in with FRANdata’s name on every page validates that we’re standing behind it, and we are using an independent and objective judgment on it. So the path to get it is one – if it comes directly from a franchisor, we’re fine with that. What we’re finding is the most effective way of doing it is, all of the BCRs that are available are on the FranchiseRegistry.com website. And coming down through that path for underwriting, all of the SBA lenders have to do that anyway, so they’re already coming through that site. We’re just making it more convenient for them, putting an NDA right into the access point for a BCR. It just makes it a much smoother process. So, for underwriting purposes, as well as prospecting purposes for lenders, we’ve already screened them because we control the passwords for them to gain access to it to begin with. So, that path – it seems to be a more efficient way of doing it than having it come directly from franchisors. But franchisors choose to do that. We’re fine with that as well. It’s their document, and they control the distribution of it.

Mike Rozman:
Thanks, Darrell. And Janell, are you requiring a bank credit report today? Will you approve a brand if they don’t have that BCR in place?

Janell Anderson:
No. We don’t require it at this point in time, but it certainly is something you can become spoiled with. I think as it becomes more and more the norm, I can see that becoming a requirement in the future.

Mike Rozman:
Are there elements that you require in your process as you – go ahead.

Janell Anderson:
I think early in the conversation, we hit on it that we look at the borrower first, and we look at their wherewithal, the sufficiency of capital, whether it’s their own equity, additional funding from the bank, and support from the franchisor. So, all of those factors come into play, and we do look at the ____ code. We do look at _____ franchise information, determining what’s available. But, I wouldn’t say that we would only rely on the bank credit report at this time. Again, that could be something that happens in the future.

Mike Rozman:
Okay, great. And when you’re looking – and I’ll stay with you, Janell – when you’re looking at a brand that doesn’t have a BCR, and you are thinking about that franchise risk. So, I heard you loud and clear. You’re meaningfully underwriting the borrower. What other digging are you gonna do to get a handle on the brand if they don’t have a BCR?

Janell Anderson:
Well, I’d like to have an idea that those projections that they’ve provided have been reviewed by the franchisor or sanctioned so that the franchisee didn’t just come up with them on their own – that there’s some basis in fact for what they’re providing to us. So, there might be – and certainly we’d send – let’s say that the franchise isn’t on the registry for whatever reason. Again, we don’t like to do that, but we will go back to the SBA and have them look at the agreement too. And I might be able to get some information from the SBA, too, as far as their actual results. I would try to see what we could get through the franchisee from the franchisor on results in the region.

Mike Rozman:
Good. And Grayson, I want to kind of bring you into this piece of the conversation – you’re not off the hook just yet. You just heard from a banker that says, “I’m looking for the brand to have validated these projections.” How, as general counsel, does that make you feel?

Grayson Brown:
Well, it always gives me a concern wherever we’re having new talk about financial _____ representations when we don’t make any in our FDD. So, for me, it’s about the comfort of knowing that the BCR is a proper method of delivery to the lender that is information that they can be provided, and it is something that we’ve looked at and reviewed closely and ensured that we could stand behind every representation that we’ve made of that product. And so, for me, I’m a whole lot more comfortable doing it through a process that I know is vetted and put together, versus having just my CFO or my controller answering questions from a banker, or from various bankers. In the past, that was the case.

Mike Rozman:
Okay, great. Thank you for that. I want to get another poll question – this time for our lenders. So you franchisors can sit back. I want to explore with you, getting your input on something we’ve been asking the panelists about on the bank side. When you’re evaluating a brand in connection with a financing request, what is the single most important factor? And we have them offered up here. We are gonna ask you to select one. So you lenders, when you’re looking at a brand, and you’re trying to get a handle on them, and arguably, I’m sure you want to check all of them – I trust you all want to check all of them, but we’re going to ask your most important one: number of open units, number of years the brand has been franchising, the statistics on unit closures, the SBA Default/Charge-off stats, and overall unit economics. Anxious to see what these numbers are, and looks like they’re coming in now. Gonna give you bankers a minute ‘cause it’s a fairly complicated question because we’re putting you on the spot to go ahead and select one when we know you want to select, if not every one of them, then certainly the top three or four. So we’re gonna give you one more moment here. Okay, great. Let’s publish those results. Okay, and so, a clear leader here is this SBA Default/Charge-off statistics with closures and years of franchising kind of trailing behind. And this is – I don’t think there is a right and a wrong answer. I think we are going to explore this topic of the SBA data. I think that is important for us to explore, and kind of to that end, Darrell, I know this is something that you’ve been kind of banging your shoe against the pulpit on as far as SBA data and the role it has. What’s your response to seeing those statistics?

Darrell Johnson:
Well, it’s not surprising because what we’ve had to do historically is rely on whatever information is out there, and SBA data is out there. So, historically, lenders – knowing that it’s imperfect and substantially inaccurate in many cases, it’s still something to look at. And even some credit policies have been drawn around SBA data. The problem, as we all know, is SBA data is substantially inconsistent and inaccurate in many cases as it comes to realize the franchise lending. We’re working with the SBA and have been for the last couple of years in trying to bring solutions that will allow for better data integrity going forward. But the fact of the matter is: it’s not very reliable. The SBA knows that. They’ve put a disclaimer on the very cover of a distribution under any SBA statistic that says, “Lenders do not rely on this.” We’re trying to fix that, and we have some – we’re actually under way in some solutions to it this year. But it’s a problem, and unfortunately, there was nothing before BCR that was really helpful as a substitute for looking at bad data. Now, what we have is something that really renders that SBA data largely unnecessary, but at least can put it in context.

Mike Rozman:
That’s for that Darrell. Tip, I want to hear from you as a community banker. What role does the SBA Default and Charge-off numbers play for you? Do you guys look at it? Do you use it in your process?

Tip Spata:
Oh yeah. I mean, it is something that we look at. It’s been mentioned several times. It’s a tool, and as bankers, we look at the rearview mirror, so to speak. We try to see if there are any trends, positive or negative, and definitely the BCR – putting that kind of information in context – it does help explain a lot of the numbers that they’re showing, as well as showing the other SBA numbers, because until I’ve seen a BCR report, those numbers are all you have, and you have questions a lot of times about – how did this number get this? Where’s this percentage come from? But that’s all you have, and you don’t really have anywhere to go to with any of those questions.

Mike Rozman:
Thanks. And I want to hear from Brian on the same topic. Brian, what are your thoughts on the SBA Default numbers and what role does it play in your underwriting process at Chase?

Brian Myers:
Yeah, sure. They – we do look at those, and they are a part of, again, kind of the big picture. When we look to kind of get comfort with a brand, we’re gonna look at a lot of different things. I think what the BCR does, number one, is it takes all of those things and puts them together in one doc, and it kind of allows us to see the big picture. But outside of the BCR, we’re doing our due diligence to try and find a little bit about the brand, and that’s just one piece of many things that we looked at.

Mike Rozman:
Thank you. So, I want to get one last poll question. I just want to take a look at the clock here. We’re winding down here on the hour. Our panelists have agreed to stay a little bit longer to answer questions. So we’re gonna get one last poll question to our lenders, and then we’re gonna transition to Q&A. We’ve got some very substantive questions here that I’m anxious to start getting in front of our panelists. But before we do, I have one final poll questions, and this again is to our lenders. Is it important for the brand to supply system related information in connection with a financing request? So, when you have a franchisee in front of you, do you want to have information on the brand as provided by the franchisor that’s supporting them? So, let’s hear from lenders on that, and we want to – we’ll share that perspective. As these numbers come back, the lenders are gonna do their own diligence, and we heard from Tip – they’re gonna absent other information, they’re gonna fill it with what’s out there, what tools are out there. So let’s publish that. And even as we see the response coming back in, it falls in one of our less informative answers because, sure, we hear it. Banks want information. They can get it from the brand to supply that information – loud and clear, we hear you, bankers. So, with that, I want to – I know some of you are gonna have – some of our audience are going to have to drop on the hour, so let me please pass on a thank you to our panelists. And in particular, I want to thank you guys for sticking around to answer just a few more questions. We won’t run past 3:15. We will take a hard stop in just another 20 minutes from now. But I suspect we’ll be able to get through those questions before that point. So, for those of you who can stay on – and the session is being recorded. I do want to just make a quick note of upcoming events. The Franchise Finance Conference is taking place next week in Las Vegas. BoeFly will be speaking at that even, as will FRANdata. We’ll both be exhibiting at the multi-unit conference coming up in a few months. I think that’s – okay, perfect. And there’s – and so there’s information on the Franchise Finance Conference, and the IFA is doing a second round of the small business lending summit, and that’s taking place in April, and we’ll have information on our website to that effect. So let’s get – so, thank you everyone. And let’s get into the questions that have come through. Wanna go ahead and bring those up. We have a number of questions around size of the franchisor, and when is it appropriate, and here’s one – they come from a very large brand. Why do I need one? And so, I’ll give this first question to Darrell. Big brands – lenders presumably know who they are. Should they be getting a bank credit report?

Darrell Johnson:
Well, I think the real question is: how easy an access does a franchisee have to credit today? We’re in a period right now in transition where for about the next two or three, maybe four years, there’s far greater demand for credit than there is a supply for credit, which puts lenders in the position of being able to basically cherry pick good quality franchise loans. It’s a reasonable thing for them to do. But, the size of the brand doesn’t change the imbalance we have between the willingness to lend and the demand for lending. So, my question back would be, to the asker of that: how much of a challenge are you having with getting franchise lending? And that isn’t just, is money being available? But, is it being made available on reasonable terms? Because as we get through this, brands that have good performance are going to have better terms for their franchisees. So, it seems to me that even a mature brand that’s a large brand has an advantage if they are performing well, to get that message in to the lender’s hands and to do so, objectively and show it for what they are doing.

Mike Rozman:
Thanks. We heard comments around the SBA data being flawed. We have a question coming in from a franchisor – a CFO from a franchisor saying, “Where do I see this information?” We can make that information available for brands who are looking for their SBA Charge-off data. It is publically available information. We have that information, so if you want to e-mail us, and that person who asked that specific question, I will e-mail you directly with your current Charge-off information. But, there’s a follow-up question which I think is probably good to share as well: what’s the advice to brands that know their number is wrong? So let’s say we’re gonna get that CFO his Charge-off numbers, and he believes the numbers aren’t accurate, or there’s miscounting. Is there a process to fix it? I will go back to Darrell on that.

Darrell Johnson:
Well, the challenge there is getting it corrected. And unfortunately, the SBA isn’t in a position to fix data systems that had inherently wrong data in it in the past. And so, the answer to that is twofold. The first is: to be aware of what the errors are. We do analyses for franchisors on that specific point. How is their SBA data – how accurate is it? We have access to a lot of information so that we’re able to assess that, and I’ll give you a quick example. There was a brand that we just did this for in the smoothie sector. They had 118 brands – 118 franchise loans identified under the SBA. 4 of those 118 were not even their loans, but they were identified under their brand. However, we found in our initial analysis 40 more franchise loans that were – that should’ve been associated with their brand, that weren’t even identified as such. So that’s how inaccurate that data is. The question is: what do you do about it, which is what is being posed. And the answer to that is: we are working with the SBA to try and bring a solution to that. Where it isn’t going to work very well is for each franchisor to go yelling to the SBA because the SBA is frustrated as well. They don’t want to put out bad data, but they are in the process of trying to find ways to fix it, and it has to be done on a more global basis than on an individual basis, and that’s what we’re trying to bring to them.

Mike Rozman:
Okay, so we have a question from a franchisor addressed to the lenders. Franchisors – don’t miss this opportunity because a number of lenders who are on the hot seat, so feel free to shoot in any questions you want to address to them. As a related question that comes in: do lenders want franchisor forecasts in additional to historical financials, or just ______ forecasts? So, Brian, I’ll start with you. The person’s asking: do you want the information on the franchisor’s financials, or are you just looking at the franchisee’s financials? And if so, do you want forward looking forecasts from the franchisor?

Brian Myers:
Yeah, thanks Mike. Ultimately, like I had said earlier, we’re looking and assessing the borrower first and foremost. And so, once we get kinda through that process, we’re looking for anything additional that’s gonna help us to gain more comfort with that loan. And so, the franchisee, having those forward forecasts, obviously are very important. Based upon their location, demographics, things like that – but I think it’s also important to see any trends that might be occurring with the franchisor. I mean, how quickly are they growing? Are they remaining profitable? Are the revenues still high? So, those are very important trends to see. It just may prompt us to ask another question, or ask a different question. But ultimately, we’re underwriting our borrower. But we want that additional support to understand what the franchisor, and the strength of that brand brings to that deal.

Mike Rozman:
Thanks. And I want to remind or share with everyone on your way of ending this session, you will be given some exit questions. We’d very much appreciate you taking just a minute to answer those questions. Another question for a banker: we often hear that banks want to know what the franchisor will do if the franchisee gets into a challenging situation. The following question is: what is the bank really looking for? I’ll say that’s a level of detail question. Brian, since we’re on you right now, why don’t you share your perspective on that. Do you want to get information that the brand will help the franchisee in challenging times, and what specifically are you looking for?

Brian Myers:
Sure, I think that’s important to understand. Not only the ongoing training. Before, there may be a challenge in that particular franchisee, but when there does pose a challenging situation, are they putting folks out in that store? I mean, are they – what are they doing – I think is very important, because that certainly will, to me, show me that there is definitely some additional strengths. But again, it goes even before that. And again, the ongoing training, and the ongoing focus on making that franchisee successful to me is very important.

Mike Rozman:
Okay. And Janell, how about you on this? Are you looking at anything specifically from the franchisor to be able to give you comfort that they’ll be there on a rainy day for the franchisee?

Janell Anderson:
Yeah, I think there was one agreement that we looked at, or one franchise that we looked at, that wasn’t a large franchise, but they basically said, “If the franchisee can’t do this, we’ll come in. We’ll run this.” And I thought that was a really interesting perspective that’s not very common. It was almost like a succession plan. You very rarely see anything like that, but you certainly want to see that they’re not gonna withhold, or they’re not gonna make it difficult for the franchisee to exit if they have to, and someone else could step in.

Mike Rozman:
I appreciate that. We have a question, and I think this is a similar theme. We have a couple questions in this area presented by a franchisor. How did the BCR – and I’ll address this to you, Darrell – how does the BCR process vary, and how is the underwriting difference if you’re newer to franchising, but have some corporate owned stores? So, an emerging brand in the franchising side, had some corporate owned background. What’s your underwriting process on the BCR?

Darrell Johnson:
That’s a very good question, and this often comes up with emerging brands that come to us and say that we want to undertake it, but what do you do? How do you approach it? Starting on the premise that history is a great predictor of the future, a brand that doesn’t have much history doesn’t have much way of predicting the future. So the approach that we take when an emerging brand is different. It becomes more of a perspective in what this brand has, what their company units have done, what their position is, how their management team and their capital structure has been put together – and analyze that, and then look at it in context of a comparative analysis in the sector. So it becomes more of a comparative report, rather than a credit risk report on that brand compared to peers. We look at a comparative analysis of other brands that are a little – that have grown through this emerging stage, and how they had done, and what they had looked like, and put that together with what this brand has going for it today. And it’s that basis that we assemble it for the benefit of lenders. Clearly, an emerging brand that has very little in the way of its own history has a greater challenge in this credit environment to get access to credit. But that doesn’t mean that understanding what they have, and what that sector’s risk profile is across the sector isn’t important from a lending standpoint. It helps in getting access to capital, but it’s clearly a bigger challenge.

Mike Rozman:
Thanks. And we have a question from that raises a point around non-lenders accessing the information, such as in this case, lender service providers. Darrell, what are your thoughts on that? I mean, from your perspective, I assume a brand can share the bank credit report with whoever they please, correct?

Darrell Johnson:
Well, that’s right. But we caution the franchisors, and most all of them understand – that Grayson related to it earlier – that there is a lot of information in here that is not part of the regulatory – the FDD process. And this information is not – it’s intended audience is not for a prospective franchisee. So it’s up to the franchisor for organizations other than qualified lenders which we screen and give access to on the franchise registry website. It’s their call whether they distribute it beyond just the lending community. And some franchisors have seen that it’s beneficial, and occasionally will give it – some brands actually distribute it to their existing franchisees, because once a franchisee is signed up and operating, they don’t have the same regulatory constraints. So, that’s just the franchisor’s call. They control that document. We _______ licensing a BCR to them for their use, and it’s ultimately the franchisor that makes the call on things like that.

Mike Rozman:
Okay, and we have a question that’s coming in—I think that can be shared. I’d like to hear the view of a franchisor on this. Susan, the report – the BCR, does it take into consideration – at least, your BCE – take into consideration geographical performance and location data? In this case, they provide an example: what states or regions are most successful, or urban versus suburban? Does that come into play in your BCR in any way?

Susan Wise:
No, not in our BCR. We don’t have many geographical representation like that. It’s more of just the ______ only.

Mike Rozman:
And Grayson, do you have – from your experience on your BCR – is there any impact as it relates to geographic performance?

Grayson Brown:
For us, actually, yes, because our history is that we’ve been in New York for 20 years in the Manhattan – and so there is some verbiage in there, but not much. It’s simply from a standpoint of our brand, and where we grew up, and where we’re going, and headed to now. But there’s not really analysis between one versus the other, but you could absolutely – I would say you could do that, and that it’s important to your bank lender and your audience.

Mike Rozman:
Okay, thanks. And Darrell, we heard that there were brands that were on that don’t have an item 19, and yet they have a BCR. From your perspective, do you have a line in the sand that says, “FRANdata can’t prepare a BCR without certain disclosures coming in from the brand?”

Darrell Johnson:
Well, Mike, if I understand your question correctly, if they aren’t putting certain things in an FDD, are they constrained in what they’re providing us?

Mike Rozman:
I’ll say – just to be clear – _____ constrained is more of – can there be a point where you say, “Geez, I don’t have anything on the brand. I don’t have an item 19, and they haven’t been forthcoming in sharing information.” So, do you have a hurdle that says, “Until a brand provides me X, I can’t really construct a BCR?”

Darrell Johnson:
Well, first of all, an item 19 is irrelevant to us because what’s put in for regulatory purposes for a prospective franchisee may be very different than the level of information that a franchisor should know about their own operations and their franchisee’s operations. So those two are very distinct components, but your question is: is there sort of a minimum level of information that a franchisor can provide in order for us to effectively do a BCR? Well, the answer is yes, but it’s not one that I can give you a: here’s where the line is exactly. We underwrite unit performance, which is a lot of the item 19 types of things, but it’s far deeper than that. System performance, which are things – we don’t look at what – so much what item 20 says about what units have come in and gone out. We get down much more into the details of what happened to the units that aren’t in the same place that they were a year ago? What is the change year to year? And basically getting the continuity rates, and what happens to the discontinuous side of units in a particular system? And we look at franchisor issues such as some that have been raised: how do you handle workouts? How do you handle underperforming units? Things of that sort. So, if a franchisor is unable to answer many of those questions, then it becomes more of a consulting assignment from our standpoint to say, “Here’s what you really should be knowing about your own system.” But I can’t say that there’s a line we can draw that just says it stops. We can’t do it below that line.

Mike Rozman:
Okay. And I think we’re ready to wrap up. Many final questions that they’re really compelling to ______, but I think we’re gonna close with this question here. We have experience that’s terribly difficult – recession, and certainly, brands have experienced closures because of it. A brand is raising their hand and asking, should they get a BCR even though the performance shows that they had recent closures? And before I go to Darrell on this, Tip, what’s your perspective on this? When you were out the relending to small businesses that have been greatly impacted by the economic downturn, obviously you’re not gonna be surprised to hear that – do you want to see a BCR in light of that? Or would you recommend a franchisor get a BCR in light of the fact they’ve had some recent closures?

Tip Spata:
Yes. I would. It would allow, like you said, it would allow the franchisor the opportunity to explain – or at least, they could put some of the numbers and stuff like that into their own words. They could – if they’ve had closures, they could – the BCR would allow them a way to, I guess, further explain, and maybe it’s limited to a particular region. Maybe it’s limited to – maybe it was one franchisee that owns multiple locations that just impacted the numbers or something. But the SBA numbers that come out wouldn’t be able to tell that story, but BCR would allow the franchisors the ability to do that, for whatever reason. So, yeah.

Mike Rozman:
Thanks Tip, and Darrell, I wanted to close on that question. Would you – are you – obviously, you’re working with brands who are signing up who have had recent closures. What are your thoughts on that?

Darrell Johnson:
Closures don’t happen overnight. Usually from the time a unit starts to a time that the unit truly fails, if it’s going to, you’re looking at 24 to 36 months. It can very well be that if you back up 24 to 36 months, that there was a franchisor that had a big growth push going on, and that was bad timing and probably bad judgment, but it happened. And so now they have a lot of closures, today. Well, from a banking standpoint, that may not be good news. But the real question is: why did it happen, and what are you doing about it today? And that’s what’s really important, because things happen. A downturn, even in good times, closures happen. Even in the best of systems, they have some closures. The question is not: did they have them, and even a large magnitude of them, but why did it happen? What were the reasons for it? If they really were poorly training – in training and selecting franchisees – all right, is that fixed, or are we still facing that same issue? Because if we are, if I’m a lender, I’m not as comfortable with that. It’s that level of understanding that we’re trying to get to with the BCR.

Mike Rozman:
Great. Thanks Darrell. And I lied. We’re gonna sneak in one last question before we properly thank everyone. We actually have a writer on the line who is active in business and real estate writing of columns for several newspapers – Jerry _____. And Jerry asks the obvious question we haven’t addressed yet that I trust is out there for everyone is: what’s this thing cost, Darrell? And share that with us.

Darrell Johnson:
A BCR underwriting is a $5,000.00 project.

Mike Rozman:
For _____ report –

Darrell Johnson:
– BoeFly there is a discount for that – for BoeFly members. But generally, it is a $5,000.00 underwriting.

Mike Rozman:
And for BoeFly members, we will be publishing that information on our site and reaching out to you directly. Thanks for that question, Jerry. It was an obvious one that we should’ve shared with everyone. I want to thank all of our panelists today, the lenders, the franchisors, and certainly Darrell. And I want to thank all the attendees that joined, and in particular I do want to thank all the BoeFly members, our franchisors and lenders for joining us today. It’s obviously an interesting topic, and I do want to also – a special thank you to the IFA for helping to promote this event, give it a nice warm introduction from Beth Solomon, and we look forward to seeing you all on BoeFly and out at the conferences very soon.