Franchise Brands Help With Lending Using Technology

BOEblogUserSmall Business Lending

On July 24, 2012 BoeFly, the online marketplace for franchise lending, and the International Franchise Association, hosted a discussion with leaders in the franchise and lending community to reveal tips, tricks and technologies to unlock the credit box for franchise growth.


  • Beth Solomon, International Franchise Association, VP, Strategic Initiatives & Industry Relations


  • Steve Overholser, CFO and Treasurer, Great Clips
  • Charles Watson, VP of Development, Tropical Smoothie
  • Kevin Ellis, VP, Atlantic Coast Bank
  • Mike Rozman, Co-president and Chief Strategy Officer,


Beth Solomon:             Well, good afternoon, everyone, this is Beth Solomon from the International Franchise Association, and welcome, this afternoon, to this very special webinar sponsored by BoeFly, a strategic alliance partner of the IFA on our credit access campaign.  We joined with BoeFly and some of our other members who have done outstanding work in the credit access arena, because for a long time it has been the number one challenge of our members – access to credit, access to capital.  In the wake of the financial crisis, as you know, lending to small businesses mostly dried up, and 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.


We’ve sponsored two small business lending summits and BoeFly has been a partner with us in that, also working with regulators and legislators to fix the underlying problems that are causing this slow-down in access to capital for franchising.  And as you know, franchising relies on access to capital to grow.  So it is one of the IFA’s top priorities, and we’re certainly very grateful to be co-sponsoring with BoeFly this webinar today.


We’re very happy today to have some excellent guests with us, really experts, leaders in this field who have been out in front building the bridges to get through this gap, this credit gap.  So it’s my pleasure this afternoon to introduce Steve Overholser, the CFO and Treasurer of Great Clips, Charles Watson of Tropical Smoothie Café, who’s their Vice President of Franchise Development, Kevin Ellis of Atlantic Coast Bank who’s won awards from BoeFly, and Mike Rozman who’s the Co-president and Chief Strategy Officer of BoeFly.


Well, thank you, everyone, and our panelists.  I’d like to have Mike Rozman give us a quick overview of the marketplace, and from there we’ll start the dialog with our other panelists.


Mike Rozman:             Thanks so much, Beth, I really appreciate you joining us today and IFA’s role and their commitment to this issue.  When we first took a look at the franchising market, we wanted to understand what brands were doing, and what we learned is that they likely fell into four different categories of franchise financing support.  And taking a look at this chart, what we see on the Y access is the level of support the franchisor is offering, and in the X access we see how efficient the financing process is for their franchisees and candidates, and frankly how much they appreciate it.


We found that brands fell into four categories.  Level 1 is fundamentally a philosophical view that says it’s the franchisee’s responsibility to solve financing.  I as a brand am not responsible.  Level 2 is a little bit more of an indifference.  They either choose not to be aware of this issue and more casually stay away from it.  Level 3 is this passive level of involvement where they may choose to make lender lists available to franchisees but not much more.  And then Level 4 is this active involvement.  Good examples here, some brands will hire a fulltime employee, others will host banker days in which banks come out to their brand to learn, and still others use BoeFly and other solutions.


In trying to give some recommendations about what brands should be thinking about, we wanted to look at the path that a franchisee must cross in order to successfully secure financing.  First and foremost, they must be prepared.  They need to answer the question, are they fundable, and what do they need to do to become bank-ready?  They need to connect with the right lenders, and hopefully a wide array of lenders to create competition amongst those lenders, create an auction.


When they’re in front of lenders they want to have information available such that the banker can underwrite the borrower.  And for those lenders that choose to underwrite the brand, the brand must make information available to make that possible.  And all these work together to allow the franchisee to secure financing.


And so as we looked at setting up our technology, we wanted to make sure we were following that path.  So our franchisor members will have a dedicated landing page which clearly articulates to the candidate or franchisee that they’re supporting them with financing.  And so we’ll hear from Charles from Tropical Smoothie, but he’s able to make available a dedicated page such that his franchisees and candidates will use this as a process.


After the franchisee or candidate signs up, they’re able to complete a single financing request, which allows them to be prepared, and it’s capturing a non-trivial amount of information.  It’s all the information serious bankers want to get their hands on, including information about the business, the owner, collateral information, pro forma financials, and it’s a robust position of what is being made available.


From the banker’s perspective, the banker is able to on an unidentifiable basis, because we don’t want to give the borrower’s identity right just yet, they’re able to learn a substantive amount of information about the candidate who’s seeking financing on key elements like debt service coverage ratio, or management experience and personal credit score, which allows the banker to be able to express, “Hey, I want to meet this borrower, they’re a match based on what I’m looking for.”


And we always empower the franchise candidate or franchisees to be in control of their data, to release that information at their discretion.  And again, we’re hopefully looking to establish an auction for that franchisee.  We have more than 2200 lenders that range from the small community banks to the largest national lenders, and the borrower should be getting in front of the right lenders.  We average about nine lenders engaging on each deal, and the borrower is always in control.  What’s more the franchisee can actually lend in lenders that they know who may not be familiar with BoeFly.


We allow that borrower, in addition to filling out our financing request, to add supporting documents securely.  Things like tax returns, SBA forms, business plans – and this is going to become critical to bankers to make sure that they can underwrite the borrower with the information.  But no one’s going to see this information until the candidate or franchisee has specifically granted access, and that’s always what’s going to be what drives us.


We also made the comment that brands want to provide information available to allow bankers to get comfortable.  So we’re looking at a Tropical Smoothie financing request, and the brand has made available their, for instance, bank credit reports.  So they’ve made an investment, they’ve stepped forward to have a bank credit report created by frame data and this is being made available here right when it matters most in connection with a financing request.  We think that’s really critical.


And so we also will empower the franchisor to require an NDA or confidentiality agreement back from the banker to make sure that they’re being as FCC compliant as possible.


So when you think about that path that we talked about before, we really do want to focus in on how a borrower can be prepared, how they can connect with the right lenders from a wide array of lenders, how that candidate can make their information available so the banker can properly underwrite them and under write the brand in an FCC compliant manner.


And so I’ll just add that we’ve seen it work, we’ve seen success stories generate.  And I’m sure the question’s going to come up, so I’ll just make a very brief comment on our pricing.  We charge the franchisor a small annual membership fee, a couple thousand dollars a year depending upon the size of the brand.  We charge the franchisee a one-time user fee on your order of $60.00 up through a couple hundred dollars, depending on how much support they want.  And we charge the banker a subscription fee to access deals.  We never charge any players on our platform a brokerage fee, because we believe that that turns away a wide array of lenders, very often community banks that aren’t willing to pay a broker fee because of concern that the incented party has a reason to hide blemishes, for instance.


So that’s a word on us.  I appreciate the opportunity today, Beth, and thanks for letting us lend our voice.


Beth Solomon:             Well, thank you, Mike, and this really is a remarkable tool.  It’s a revolutionary tool, and I think it’s a real testament to BoeFly and also to the franchise industry.  This is what we do, we come up with solutions.  It’s the best of American entrepreneurialism.  And you would be hard-pressed to find other business industries where specific tools like this have been created.  It’s a wonderful asset and it’s hard to believe that it can be accessed for such reasonable fees.


I was saying to Mike the other day, you know, he was saying to me, which he sometimes does, “You know, Beth, we really believe this is part of the credit access solution,” and I said, “Believe me, Mike, I’m a believer,” and I am.  And I think it’s remarkable when you consider the access one has to funds that are out there.  Also the training and the tutelage of the franchisees to really understand what it’s going to take to be a bank-ready borrower and then to be able to get that match right there on the site.


Mike how long has BoeFly been around, and how many clients are you working with?


Mike Rozman:             We started in March 2010 and we have more than 2200 lenders that are using BoeFly.  And we don’t just have franchises, we also have independent businesses.  But we started about nine months after launching that we started an initiative to have a franchisor specific solution, and we’re working with 120 brands today including Great Clips and Tropical Smoothie, who we’ll hear from today, as well as some top five brands in the franchise 200 as well.  As well as brands totally new to franchising too.


Beth Solomon:             Excellent, and I’d also like to point out that BoeFly is powering a financing app on, our site for veterans to help veterans get into franchise ownership, and also they are giving away their fees, their service to our nation’s veterans, so we thank them for that.


So let’s get on to our topic today of how to unlock this technology, use this technology to unlock the credit box.  Charles, you’re in charge of development for Tropical Smoothie, can you tell us a little bit about your brand and give us a sense of the market right now, how you’re doing.


Charles Watson:          Sure, thank you so much, Beth, I appreciate it.  It’s a privilege to be here and to speak with colleagues.  Tropical Smoothie Café is a healthy, quick, casual restaurant chain.  We’ve got about 310 locations, we’re in 38 different states.  We like to consider ourselves two brands in one.  About 50 percent of our sales come from the sale of sandwiches, salads, wraps etcetera, and the other 50 percent of our sales comes from all natural real fruit smoothies.  So we feel like we’ve got a really good business model, and that’s kind of been proven out over our first 15 years of business and the rapid growth that we’ve had.

Business for us right now operationally we’re driving results.  We’re increasing our average unit volume or our gross sales by double digits, and we’re also managing both our operational costs in terms of food costs and labor costs, but also development costs, which obviously are very important to me on the development side.


But the biggest thing that I’m seeing, to be quite honest with you, actually this was a great opportunity for me to go back and look at some of our development data for the past five years, and it was really telling to me in terms of how important access to capital is for any franchise organization, especially one like ours that’s small to maybe medium-sized with 30 units.

As I look back to 2007, 2007 was the best franchise development year that Tropical Smoothie has had in our history, and we did 121 new franchise deals.  That number over the years basically bottomed out in 2010 at 28 deals, so that is a rapid decline over a short amount of time, and obviously 2007 to 2010 I think we know what happened in terms of access to credit.  So our books look exactly the same way as probably 95 percent of other franchisors.


What I’m seeing is that we’re just starting to kind of creep back up, a little bit below 40 deals in 2011, and we’re expecting somewhere around 45 or so this year.  But we’ve had to really change our business model in terms of who we’re going after as far as franchisees because the person with 10, 15, 20 percent capital available to put into a deal is just not going to get funded in this environment.  So we’re really only speaking to people that have 30, 40 percent equity that they can put into a deal, because we know there’s no reason to go down the financing road because they just don’t have a chance of doing it.


So for me what I’m seeing is again just a correlation of access to capital and the number of deals that can get done, and obviously we were an early adopter of BoeFly to try and get something that we could provide our prospects and our existing franchisees who wanted to do another unit the ability to try and access capital.


Beth Solomon:             Great, and how does that work?  How does BoeFly fit into what you offer?  When does it come up in the conversation with your perspective franchisees, and then what role does it play?


Charles Watson:          Absolutely.  One of the things for any other development professionals that are on, every IFA event and development leadership conference we’re beat over the head with having a good process and making sure that there’s a fit between franchisor and franchisee, and are they going to be good in our system etcetera.  So we’ve all in our development process put into place I like to call them hoops – hoops that the prospect has to jump through to kind of show that they’re a good fit for us, and that they’re willing to follow our processes and programs as we go through the development process, because we figure that that will show that they can follow our system once they’re in our system.


So what I use BoeFly for is once we’ve done an application, FDD review, met face-to-face or done a virtual brochure or something like that, then it comes down to, okay, well, where are you financing-wise?  And I would say for 85, 95 percent of the prospects that I work with, they don’t have the cash on hand to be able to do the deals.  So I then explain to them the application that we with BoeFly and that you have access to over 2200 different  lenders, and basically, hey, here’s a financing pool that you can use in order to have banks basically compete for you.  I a lot of times use the jargon it’s the lending tree for franchise loans, and people understand that, people get that.


And so in terms of my sales process, it also becomes a hoop.  I’ve sent plenty of people to BoeFly who’ve started an application and never finished it, and to me that’s just a sign that they weren’t a good fit for us, they weren’t willing to put in the time and effort it takes in order to secure financing.  That’s not to say that it’s a difficult process, but applying for a loan is a big process to begin with.  So again, I use it in my sales process to kind of final step weed people out to see if they’re serious about moving forward with our brand.


Beth Solomon:             Well, that’s very interesting.  We typically think of BoeFly as one of those tools to help people get to the financing they need, but it may also be sort of a recruiting process to really measure whether it’s a good fit.  The BoeFly site is very well done, it’s very clear, it’s asking for specific documents, and if your prospective franchisees can’t get through that process for whatever reason, it’s probably an indicator that’s worth paying attention to.


Could you tell us a little bit – you’ve mentioned that there are documents that banks see on the site, can you tell us what those are from the franchisor’s perspective?


Charles Watson:          Absolutely.  And I didn’t mean to by any means say that it wasn’t an easy process.  The thing that I’ve been most impressed with with BoeFly and the platform that they have is really the support that they have available, both phone, training on the site itself, so I’ve been very pleased with that.  But as we know in development, sometimes deals die anyway.  But what BoeFly allows us to do is really to put all of our documents, be they sales documents, such as our application, our franchise brochures, in our case menus, and what our sales process is, as well as documents that we’ve gone out and created with other IFA partners like FranData.  So we have our bank credit report out there, which I think you saw in that slide, SDA default data report out there, as well as our FDD and a copy of the franchise agreement.  So all the information that a lender needs to really get their arms around what Tropical Smoothie Café is is already loaded out there on BoeFly for them to have easy access to.


Beth Solomon:             Excellent.  And Kevin, who’s our lender on the call, how are these documents relevant to you, and how do you analyze them?


Kevin Ellis:                  They’re very helpful.  You know, it’s a two-part process for us.  It’s looking at both the brand and the borrower.  Clearly we want to understand our borrower’s creditworthiness, but we’re also interested in understanding the brand, the franchiser’s business, their track record.  As you know, it’s a pleasure for me to be on this panel, and BoeFly has been a big part of my success personally, so I’m always ready and able to speak to the strength of the platform.  And one of those is having that ready access to information in helping me make my decisions on a day-to-day basis.


Beth Solomon:             Thank you, Kevin.  What’s the difference in your mind between looking at the FDD, let’s say, and a bank credit report?  And do you prefer one or the other?  How do they fit together?


Kevin Ellis:                  Well, the bank credit report is a great document.  Luckily I’ve done enough of these now that I know how to read an FDD inside and out and I can pick out what’s important.  I will tell you that not all of our deals that we approve and underwrite have bank credit reports.  And often the FDD is a perfectly acceptable document for me to use in my underwriting process, along with the other data that’s out there.


Beth Solomon:             Got it, very interesting.


Kevin Ellis:                  When the bank credit report is available, it’s helpful.  But certainly that is not a requirement or the lack of one is certainly not an impediment to us getting the deal done.


Beth Solomon:             Do you think it’s a competitive advantage?


Kevin Ellis:                  You know, that’s tough to say.  Certainly it’s a helpful document, it’s a one-stop shop type document.  But again, I’m having a lot of success with a lot of brands that for whatever reason have chosen not to do it, and we’ve closed those deals.  So like I said for the deals that we’re doing, it has not been an impediment – the lack of a bank credit report.


Beth Solomon:             Good to know.  Charles, have your franchisees had success with using the BoeFly tool?


Charles Watson:         They certainly have, and again, for a brand our size, we don’t have, like some other big brands, we’d call them program lenders back in the day in hotel franchise we used CIT a lot, I know they’ve done a ton of deals.  So as those kind of program lenders dried up, a brand our size, we had nothing to go to.


So a great example would be going into a new State, we work with a franchisee now, Angie Frost, we’re going to be opening our first Tropical Smoothie Café in Boise, Idaho.  We’re new to the State, we don’t know any local lenders.  Angie spent a majority of her career in Las Vegas, so she was moving to Boise, so really no connection there.  We turned her on to BoeFly, she began the process, also checking kind of with local banks.


With BoeFly she was actually given very specific instructions on creating her financing request, because as you go through the whole process, in her case she actually had 19 supporting documents that were online, her own personal information or documents as well.  And again, BoeFly gave her instructions on what to include, and I know for a fact that she both used their online support as well as picking up the phone and speaking with basically former bankers or former experienced lenders that are working with BoeFly to help take her through the process.


So as she went through the process, she had multiple lenders request access to her deal.  She was in control of being able to say, “Okay, you can see my information or you can’t,” and she made those decisions for herself.  And ultimately she got a loan from Mountain West Bank in Boise, which is a local lender.  They’re very excited to have our brand come to Boise.


She really appreciated that Tropical Smoothie had – again, we love to take credit for things that we didn’t do – she loved that Tropical Smoothie had a financing platform like this for BoeFly, so we’re obviously very pleased that we have BoeFly to be able to offer that as a solution to our franchisees.


Beth Solomon:             Well, I think that’s a good point, Charles, and it’s a testament to the new normal, which is franchisors really getting involved, really getting invested in this, following the process.  And also what you’ve pointed out is the fact that having BoeFly among the resources available to your perspective franchisees is a sign of credibility for the company, and banks are looking at that.  And then I just love that a local lender was found using this site that can connect people in every geography.  So it just goes to show how the power of technology has revolutionized this entire process.


Kevin, Charles said that his franchisee created a complete request.  Can you share your perspective?  What does that mean?


Kevin Ellis:                  From my experience, borrowers that I source through BoeFly are very prepared to engage with me as a lender.  We’re not a program lender.  We’re a community bank with physical locations in South Georgia and North Florida, with a lending platform of Florida, Georgia, North and South Carolina.  So my reach is somewhat limited.  We have successfully leveraged BoeFly on a number of occasions on franchise-related deals across a number of industries, and I think the reason is because of the strength of the platform and the fact that these borrowers are coming to me fully prepared.


To give you a great example, last week I got notice that there was a new deal in the State of North Carolina, which is a State that we cover.  It was for a restaurant start-up franchise.  I went in, I requested access, I was granted access, I was able to propose within a couple of hours, and now I’m moving forward with that borrower.  That is spectacular.  The time saved with me being able to download that information and view it all at once is such a time saver, and it just speaks to the quality of the platform and the borrower for that matter, because they went through the process and they did what they were supposed to do.


For example, on the flip side of that, I had a local borrower with a franchise-related deal walk into my office a couple weeks ago, and we’re still kind of at step one.  So it just goes to show you, I can deal with somebody in North Carolina in a matter of hours and fully engage them on a deal, whereas somebody dealing with me face-to-face where I’m kind of constantly asking and asking and asking for things and not necessarily getting them in a timely manner.


Beth Solomon:             Very interesting.  Well, it’s only 2:30 here, but I want to raise a glass to that transaction in North Carolina.  I think it’s a testament too to in the information age, information is power, technology is power.  The fact is, BoeFly is organizing the documents, the information that’s needed and so things can move at quite a rapid and efficient pace.


I’d like to ask Steve about this, of Great Clips.  Steve, Great Clips has about 3,000 units, you’re a more mature established brand, how is BoeFly working for you, and also could you give us a sense of what the market is looking like to you right now in general.


Steve Overholser:       Well thanks a lot for asking us to participate in the panel.  Great Clips actually has been on a very good trend the last several years.  As a matter of fact, with second quarter we just completed our 31st quarter of same salon sales growth, and the 26th quarter of same salon customer traffic growth.  So the numbers have been up inside of our salons, and as you mentioned, we’re actually at 3,186 salons as of today.  We expect to grow our system by about 200 salons this calendar year, and we added just over 200 salons last year as well.


So our system has been growing very, very, very well, as well as our franchisees have been increasing in their bottom line and working towards continuing to build customer traffic and build business in the salon.  So some of the challenges that we continue to have and have had over the last several years is just getting access to enough capital to satisfy demand from the standpoint of our existing franchisees looking to continue to expand as well as new franchisees coming into the business and beginning to build their first units.


So that’s one of the reasons why we made a connection with the folks at BoeFly initially in 2010.  That was a year which for us was the first year that we really saw a major drop-off in just general access to capital, access to credit for our franchisees, particularly new franchisees trying to start up a new business.  And we have had many lenders involved with us, and I guess what we’d call program lenders in the past, some of whom were either from a standpoint of not willing to take on additional Great Clips salons because they had a large percentage of their portfolio in Great Clips already, or they weren’t willing to take on startup situations despite the track record of the company and the success that we had had.


So knowing that we really needed to reach out to many more small and community banks, we saw the BoeFly tool as a great opportunity, I think as Charles said, kind of the lending tree for franchise loans.  We really saw it as the same thing as to add an additional avenue for our franchisees and perspective franchisees to look to access capital markets.


Beth Solomon:             Thank you, Steve.  Is program lending better?  Is BoeFly better?  How does it all fit together and how does the changing landscape of accessible capital affect your thinking on that?


Steve Overholser:        We have been very fortunate that we’ve had several lenders that have worked with us for the last 9 or 10 years that while their access to their own funding sources have created certain limitations, we’ve still been able to maintain a certain level of loans.  The difference has been rather than 90 percent financing and even 80 percent financing they’re able to put together deals that might include 60 or 70 percent financing with more equity put in by the new franchisee or by the existing franchisee.  We’re able to utilize existing business valuation to access additional capital for expansion.


So it’s been a situation where we’ve had franchisees required to become much more creative, much more diligent in looking at alternative lending sources.  More situations where their existing bank maybe wouldn’t do the follow-on loans, whereas in 2006 and 7 that was easily the case.  So from our perspective, we needed to add another arrow in the quiver so to speak when it comes to just accessing the capital markets for all of our franchisees.


Beth Solomon:             Excellent, thank you.  And there’s an issue of concentration which affects lenders.  Kevin, I wonder if you could address that.


Kevin Ellis:                  Yes.  Certainly it’s something to think about.  We haven’t gotten there yet so I’m looking forward to that time, because that obviously means I’m doing a lot of deals.  But clearly there are risk management folks and credit officers that want to understand what our exposure is at any given time.  Behind that, of course, are regulators.  We’re a fairly small bank and I think at some point we’ll probably reach a limit with one particular brand or industry.  I may love the risk of a Great Clips, but my bank perhaps at some given time, given that I’ve done a lot of them, probably won’t let me do an unlimited amount of those.


And that’s another reason why I like the platform of BoeFly as a lender.  I like the franchise businesses and it allows me to reach out across a wide array of different industries.  Once I do a few franchises from a given brand, I may hit my limit, but with the BoeFly platform, again, I’m meeting franchisees from across 120 or more different brands in dozens of industry sectors.  So it really allows me to diversify my lending.


Beth Solomon:             Very good to know.  Steve, how do you use the tool, BoeFly and other lending tools, when do you bring them into your process with perspective franchisees?


Steve Overholser:        Well, as we walk through the process with prospects, of course one of the things that has changed for us, I think Charles alluded to it as well, over the last three years we have increased the liquidity requirements for new franchisee coming into the system just with the higher access to capital that we knew about.  We knew that a franchisee would have to provide more of their own equity into the first deal to get a unit open.


So within the development process, most franchise prospects are going to ask the question, “How do I get financed?  How do I make sure that once I sign this franchise agreement I can get enough capital to help me get open?”  So historically we’ve used a couple of our program lenders who have been willing to actually assist our development managers in the process of talking about credit scores and requirements and so forth and so on regarding what is needed to be able to get approval for a loan and almost do a telephone approval initially just with the discussion with the prospect.  That situation has gotten a little bit tougher and tighter.


What we do is we provide several tools that we have built for our franchisees, such as a business model and some other tools that they can see that are going to help them go out and get financing, and then we’ll talk about the BoeFly tool in addition to the other tools that we have available and other lenders that we have available for them.


Beth Solomon:             Got it.  Have you looked at other platforms like BoeFly?  Is there anybody who really does the same thing?


Steve Overholser:        We’ve looked at several other possible solutions and several other actual lenders or program type lenders that are brokers that are looking at adding some type of an online tool similar to BoeFly, but out of all the work that we’ve done, 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 or access to the process so it becomes very transparent from our perspective.  It’s a better support mechanism for the prospect or the franchisee as they’re walking through that application process, and just the marketplace that it creates with the number of lenders that are signed up with BoeFly, there isn’t anybody that we’ve seen that comes close.


Beth Solomon:             Kevin, I wonder if you could add your perspective to that.


Kevin Ellis:                  Sure.  From my perspective as a small business lender lending in the franchise world, I’ve certainly been approached by a number of entities that present as marketplaces.  But there are a couple of main differences.  One, the quality of the preparedness of the borrower is nowhere near to what I find on the BoeFly platform.  I also like the way that I’m charged on a monthly basis versus a broker situation.  I pay a small monthly fee to get unlimited access to borrowers, and that cuts out the broker fee.  On the other sites that I’ve seen, they’re advertising as a BoeFly but they’re acting more as a broker and charging a fee on the deal as opposed to on a month-to-month basis.


Don’t get me wrong, I am able to pay brokers and I’ve got brokers that I’m more than happy to pay a brokerage fee to.  But on the whole, I like the fact that the BoeFly pricing is – let’s face facts, I pay for a couple of years with one sold deal, and that’s pretty compelling to me and to management.  When I first got on the platform my managers were like, “What is this?”  And now on a weekly basis they’re asking me, “How many deals did we get from BoeFly this week?”  The bank’s paying for my monthly fee.  That’s pretty compelling to me.  I think it really adds to the legitimacy of the platform and that it is this new technology that I think is going to be the norm as we go on into the future.


Beth Solomon:             Yes, indeed, and what we’re hearing from the lending community is that as we climb out of the financial crisis, there is more pressure on lenders to lend.  That is how banks make money.  So we haven’t seen that as a huge volume in a little while, but we expect to see more and BoeFly and folks like you are I think kind of leading that effort.  We’re starting to get questions from our participants today on this webinar so I’d like to encourage that, and we’re just going to start sprinkling them into the conversation here as they come in.


First question, let’s ask Kevin.  The first question is, “We’re not a brick and mortar concept – can this work for us?”  Kevin?


Kevin Ellis:                  Are we talking about to where we’re just doing sort of leasehold improvements into a storefront type business?


Beth Solomon:             Well, let’s say it’s a home-based concept, teaching concept, where sort of the structure of the deal is looking a little different, and Mike, maybe you can speak to some cases you’ve seen.  Can valuations and collateral and so forth be designed otherwise to make these loans happen?


Kevin Ellis:                  Well, sure.  Again, we’re going to underwrite both the borrower and we’re going to do some underwriting of the brand.  And if it sort of passes muster with us, and many, many do, then absolutely.  Most, if not all of the franchise deals that we’re doing are under-secured, if not unsecured.  I think that we’re leveraging the SPA7A program the way it’s supposed to be.  I think we’re doing our part and clearly that is not a collateral dependent program.  We take it when it’s there because we have to.  But on a good franchise with a good borrower, we’re not going to walk away from that deal because of a lack of collateral.


Beth Solomon:             Mike, any thoughts on that?


Mike Rozman:             I think that sums it up.  I’ll add that I think there’s a perception around some franchisors when they don’t have a program in place there’s a bias to assume that the big guys have the capacity to bring more lenders to their deals, or I assume that a large restaurant concept has a ton of collateral.  Kevin jumped right to the core point is the typical deal we see on BoeFly is not what a commercial lender would call a brick and mortar deal.  The borrower takes on a lease and they have no real estate assets or commercial real estate assets to speak of.  They may have a freezer that another brand may not be dependent upon.  But you think about the assets involved with either Charles’ business or Steve’s business, I don’t think either would necessarily from a commercial banker’s perspective be considered brick and mortar concepts.


Beth Solomon:             Good to know.  Well, that is a good tee up for the next question, which is what types of deals get the most attention from the lenders?


Mike Rozman:             Certainly Kevin can sound off on this, but from my perspective, what we find is that it’s a hyper-localized engagement.  By that I mean the borrow that Charles mentioned in Idaho, they were Idaho community bankers on that deal that have no interest in looking at a deal that Kevin’s looking at in North Carolina.  So I think geography is going to come into play.


This is where I think the marketplace really comes into play, Beth, is we have a couple thousand lenders.  That’s a couple thousand different, unique credit boxes that we’re trying to match up to the borrower.  So if a borrower were just to knock on a bank’s door, they’re hoping against hope that that one bank is a match.  In our case, we’re allowing the bankers to be drawn to what makes sense for them as a lender.  So that’s where we take this approach of saying the more lenders I get in front of, in a very controlled way, is what I want to accomplish as a borrower, and that lender should zero in on what’s relevant to them.


It’s amazing, we have lenders who work at BoeFly who spent their entire previous career in lending, and they’ll see a deal come through and they’ll say, “Ah, poor guy doesn’t stand a chance.”  And sure enough, the deal has a half-a-dozen, two dozen lenders on it that are anxious to look at that deal, because that lender came from a different credit box.


Kevin, what do you think?


Kevin Ellis:                  Clearly, good deals with good borrowers and good brands behind them I think are great candidates.  I think a lot of people would tell you in this environment that restaurant lending is dead or has been severely impacted.  I would counter that by saying the majority of deals that we do, some of which we’ve sourced on BoeFly, are start up restaurant deals.  So there is lending going on out there.  And I think the BoeFly platform allows folks to get in front of a lot more people than they would have ever going door-to-door, and it puts them in a bit situation.  I’ll tell you right now, when I request access on a deal, I know going in I’m not the only one requesting access.  More than likely that borrower is hearing from at least five, six, seven other people, at minimum.


Beth Solomon:             Well, that brings up another question from our audience – as a franchisor, can I see which lenders are looking at my franchisees?  And, Mike – and maybe Kevin sort of hinted at it in his answer – do the lenders know which other lenders are looking at deals?


Mike Rozman:             So, and this is really a technical difference – the lenders only see the borrower’s information.  They don’t know which other lenders or in fact other lenders are in play.  In the case of the brand, the brand is able to see the same imagery that the borrower sees as far as what banks are engaged on a deal.  So from a borrower’s perspective, the borrower is able to look at which banks are browsing that deal and the franchisor is able to see the same thing.


So the screen we have up right now, the borrower, the franchisee, has the capacity to see which lenders want access.  The franchisor can log in and monitor which banks are also engaged on their deals.  And this is I think an interesting thing to think on.  Brands may want to lean forward here and also engage with these bankers.  Kevin, I don’t know if you’ve ever received a phone call from a brand saying, “Hey, I saw you on BoeFly looking to deal.”  But I think bankers may welcome that level of engagement, and I heard at a conference one time advice being given to franchisors, go sit in your banker’s lobby and take the time and advise them about the brand, and that’s great.  But in the case of Charles who’s got a borrower in Idaho, to have him go out there and meaningful educate all the Idaho bankers about his brand is just inconceivable.  But, he can lean forward when he’s got a borrower in that community and he can engage with lenders on a very transactional moment to be able to educate the banker about the brand.


Beth Solomon:             Very interesting.  We have a follow up question for Kevin, and I think it’s a good clarifying question.  The questioner asks, “Would you do those deals without an SBA guarantee?” which I think raises the question, what percentage of the deals that we’re talking about are SBA loans on BoeFly?


Kevin Ellis:                  100 percent, for us.


Beth Solomon:             For you.


Kevin Ellis:                  Right, we have a very limited conventional platform.  We are primarily SBA 7A504 and we do some USDA lending from time to time.  But from a franchise startup standpoint, those are all done under the 7A program.


Beth Solomon:             Got it.  And Mike, could you give us a sense of the breakdown of SBA versus conventional loans out there on BoeFly transaction?


Mike Rozman:             Yeah, so my guess is on any deal that Kevin’s looking at, there are likely – it’s probably split between conventional and SBA lenders engaged with that borrower.  However, my instinct tells me, or looking at the data I would guess that more than 50 percent of the deals that are funding are using SBA guarantee, and I think it speaks to the reach of the SBA program in today’s market, as well as the type of transactions.  I think some of the deals that we’re seeing likely couldn’t get done without a guarantee.  But I think we’re absolutely seeing conventional lending, we’re seeing resource and equipment lenders engaged as well, and some alternative financing too.  But I think in today’s environment where we are still in this tight credit environment, SBA is more in play today than not.


Beth Solomon:             Interesting.  We have a question from our audience that says, “We’re a small franchise company, we aren’t one of the big boys out there with millions of dollars.  Is there any program for smaller companies that have to watch every single penny they spend?”  And I think one obvious answer is the BoeFly model is very inexpensive, but I wonder if, Mike, you could speak to that question.


Mike Rozman:             We’ve actually set a pricing point, and one of the points I failed to mention is our pricing is all online, we believe in transparent pricing, and we actually have a price set up for brands under ten open units to go ahead and meet that, kind of that sensitive spot.  But if you think about the slide that I had up around the path that a franchisee needs to go through, I encourage the franchisor to say, “Look, very often when we bootstrap we may have to do things ourselves,” right?  So for my money, this is what you need to think about as a franchisor.  You need to make sure your franchisees are prepared, and you could do some research.  You can engage with bankers to find out what they want to get.


The connecting piece is going to be difficult because typically it’s tough to replicate a large array of lenders.  But if you’re only in one geography, you could, old fashioned, go door to door talking to bankers, and then work with those bankers to see what they want to get from the borrower.  So it’s not inconceivable that in your start out phase that you want to do that yourself.  I think when you look at it, I think we’re at $1500 investment for the franchisor, and when you weigh your time you’re going to say, “Well, look, obviously the pricing isn’t going to move the needle so much,” I think it’s probably something you want to look at.  But you could bootstrap it yourself, and I suspect you’re going to look back and it’s going to be a meaningful amount of investment of time which also does translate to money.


Beth Solomon:             Thank you, Mike.  I’d like to go back to Charles.  You’ve mentioned to us in the past that your typical franchisee is new to business ownership, so how do they do navigating the system?


Charles Watson:          Yeah, most of our franchisees have never gone for financing before other than maybe their house.  So it was very important to me.  When we started with BoeFly, we’re one of the first companies to go on with BoeFly, so we wanted to be on the cutting edge, not the bleeding edge.  So I spent a lot of time with my first 5 or 10 prospects that used the BoeFly system and really called and said, “How was your experience?  How was the technology?  How was the phone support?  How were the online videos and training?  Did you learn what a debt coverage service ratio was?  Did you read the definition that’s on the BoeFly site?” etcetera.  And 100 percent of the time the feedback that I received was very positive.

The technology is very intuitive, and again, with most people having a pretty good understanding of technology, they found it to be very easy to use.  And when they got confused or they had problems and they called me, I said, “Call 1-800 BoeFly,” that’s not the number, but “call BoeFly directly, it’s all former lenders that can help walk you through exactly what you’re doing.”  And I’ve had multiple clients that somebody from BoeFly literally say on the phone with them for an hour, hour-and-a-half, and walked them through step-by-step.  And as we all know, that’s expensive, that’s expensive to do, but that’s the level of service that BoeFly’s providing to my clients, which is a reflection on me and my brand.


And again, with our system, as with most other franchise systems, if we have prospects that can’t use technology, I mean all of us use some type of a system whether it’s a CRM system or Fran-Connect or something like that – our franchisees have to be able to use technology.  And so if it’s a complete stumblingblock for them, they can’t navigate a website, then they’re probably not going to be a great fit in our system because we’re going to ask them to do a lot of things online as well.


Beth Solomon:             Well, that’s interesting, and of course, Mike, at BoeFly of course you have a technology based program here, but you’ve obviously invested on very competent staff who can assist people and make sure that if it’s right for them you’re going to help them get through it.  And it’s interesting in an age of call centers where people can get very frustrated, tell us what’s your thinking behind the human power, the human assistance in BoeFly.

Mike Rozman:             Sure.  The level of stress that I think an individual goes through on a financing front can’t be minimized.  The best example that was given to me was a business owner had to sit across from a banker, and, you know, “I’m sitting across from this banker who’s judging me and my business, they sit in this bank and just pass judgment.”  And you could just see the frustration in this individual’s comments.


We’ve put a team in place that is sensitive to those issues, knows that the individual may be stressed about this process, and we provide the information that they need to get through it.  We have a great team that actually the majority of the team sits in New York City.  Next time you’re in town, call on us, because they love to get visitors.  These are former lenders who understand what it takes to get a borrower to the closing table.


And we’re also realists.  We don’t want to sugarcoat a situation.  We will give feedback.  We don’t pass judgment, as I mentioned before, but we will go ahead and appraise that individual of what’s going on in the market today.  And if they come to us and just had a bankruptcy six months ago, for instance, we’re going to let them know they’re going to have a difficult time.  And we’ll also give them substantive areas on things that they can focus on to improve their changes.  But we know that the people aspect is a very important part of our business and we invest with really a great team.  I couldn’t be more proud of the team we have.


Charles Watson:          Beth if I could –


Beth Solomon:             Go ahead.


Charles Watson:          Sorry, this is Charles, Beth.  If I could add one thing.  One of the terms that Mike brought up was stress, and you know, to be honest with you, at certain points during the year when my CEO and the owners of my company come to me and they say, “Why aren’t we getting enough deals done?  Why is there no financing?” etcetera, that puts me under a little bit stress, and I’m sure there’s other people on the line that go through that as well.


Recently, I guess what maybe a month ago, Mike, I needed to do a detailed analysis of what the heck was going on with us from a financing perspective, what’s out in the marketplace, what are interest rates, what are term levels, what are the equity requirements etcetera.  And quite honestly, I didn’t have that information at my fingertips.  Could I have gone and spent six hours trying to pull it together and call recently funded franchisees and all that kind of stuff?  Absolutely.


But what I did instead was I sent Mike an email and said, “Mike, here’s what I’m looking for from our owners, can you pull this information together for me?”  And literally the next morning he had a report to me on what the financing landscape was for about a $300,000 investment quick casual Smoothie type of restaurant in the marketplace, and that was a huge help to me.

So I think we shouldn’t understate also BoeFly’s ability to help the franchisor to get their arms around what’s actually going on in financing.


Beth Solomon:             Excellent, excellent.  Well, I think what we see here is we’ve reached the time when the old way to be efficient and this idea, I think, there was a time when walking into a community bank or a Bank of America, for instance, was an efficient sort of value added experience.  But I think in this age and with the power of the technology, the protection of it and its ability to organize the information that’s needed in the most efficient way — also with this help desk concept.  These are facilitators on the BoeFly team.  It’s not their job to judge, it’s helping you out to the transaction.


And I think as any of us who have ever gotten a mortgage loan before know that you often need that help doing it for the first time.  And just because there are some challenges to it doesn’t mean that a good deal isn’t right there to be had.  It’s a matter of working through the tollgates.  And that’s this value added component that BoeFly also adds to the mix.


I’d like to ask all our panelists if I could to give us any closing thoughts, anything that we’ve left out.  And then maybe, Mike, we can ask you for some upcoming events where people can get more information, more access, more exposure to this tool to help them grow their businesses.


Steve Overholser:        This is Steve, I’ll give my closing comments first here.  In the past and over the last several years we had developed in house several different components of trying to teach our franchisees the same thing that we’ve been talking about in terms of what does it mean when you walk into a bank and ask for a loan?  What do the ratios mean and what are some of the key and critical things related to putting together a financing package?  We actually created a couple of training session within our new franchisee orientation session related to banking and financing.


What this tool does is help really supplant a lot of that information that we were doing with an online tool that is really more efficient than what we do in house with that whole process.  So I look forward to spending more time working with this system and having our new prospective franchisees particularly participate in getting online and looking for loans in the new way.


Beth Solomon:             Excellent.  Charles, could you give us your closing thoughts?


Charles Watson:          Final thought – being a sales guy I have to talk about the marketing component.  I think that having a tool like this to be able to provide some financing assistance and having a tool, especially a branded tool, you know, I market the URL to my prospects.  It’s easy for them to remember to go and do that.  So I think we shouldn’t forget to yell and scream that we actually have a financing platform that our prospects for our individual brands can use.  So I think that’s very important.


Beth Solomon:             A market differentiator is what I’m hearing.  Kevin, how about you?


Kevin Ellis:                  Thanks, Beth.  I think that the franchisors should be telling their potential franchisees they should interview their bankers, their lenders.  For example, the borrower that I met last week that I was able to propose on quickly, before he granted me access, he called me, because my information was readily available on BoeFly.  He called me directly at my desk, and he interviewed me.  And I have to say, that was the first time that anyone’s ever done that.  And I think it’s great best practice.  And I think it’s something that more borrowers should employ.  I think that the franchisee should ask the lender, “How many franchise deals have you done?”  If it’s a restaurant, “How many franchise startups have you done?”


I know at any given time I can tell somebody, “In 2012 we’ve done 12 franchise deals, 7 of which were startup restaurants.  We’ve got another 17 in closing that are franchise-related with startup, resale or some refinances.”  And I think that that should be something that the franchisees are using.  I think they should interview the banker.  Put it to the lender.  The proof is in the pudding.


Beth Solomon:             We like to hear that.  We like to hear that because it’s maybe a signal that the market is getting more competitive, that credit is loosening up and that our borrowers have options.  And of course the better prepared they are – which is what BoeFly is doing and some of the other tools and the solutions that the IFA is offering – we are becoming better borrowers.  And the franchisors that you’ve hear don the webinar today obviously, skin in the game, actively participating, coaching, providing tools and solutions.


And so what this should do over the mid term is really lift the quality of our financing as an industry, bank-ready borrowers, franchisors really caring about access to capital, unit economics, the things that are going to take us to another level as an asset class and as an industry that is known for having high-quality borrowers, lenders and deals.


Mike, we thank you for all you’ve done in this way.  We honestly feel that we’re lifting the bar, we’re raising the bar for the industry, and hopefully that is a tide that lifts all boats.  We want more franchise development, more business owners, more jobs created, that’s good for our country and for our economy.  So we really appreciate all BoeFly has done in this effort for the entire industry.  This is a wonderful tool that is really pennies on the dollar when you look at the services being provided.  I wonder if you could give us a sense of some upcoming opportunities when folks can get access and ask questions and get some more exposure to the kinds of things we’re talking about?


Mike:                           Absolutely, and thanks for those kind words, Beth, and it really goes to the whole BoeFly team, and really our client based has challenged us to improve.  I just want to bring up, and what should come up on your screen now is a quick how-to that we’re making available to folks, the franchisers who were on the line who asked how does a smaller brand get started, we do have this page available.  It’s really just information based with a nice kind of image to walk individuals through that process.


As far as upcoming in person events, BoeFly will be out at the Dealmakers Summit at the end of August in Chicago, those of you who want to come out at the end of August we’d love to see you out there.  Obviously it’s for franchisors and private equity investors.  And I heard from Beth that the IFA is going to be also taking a real active step on the franchisor or private equity opportunity come Spring.


We’ll be at the Public Affairs Conference in September, and it’s a great opportunity for you to visit with your lawmakers and express the important elements that the franchise industry needs help with.


We’re having a webinar in mid September on focusing in on understanding person guarantees, and it’s really applicable to your franchisees and candidates, you’re welcome to invite them in.  And we’ll be in Atlanta in early October for the Franchise Leadership and Development Conference.


I want to really thank everyone for participating today.  It’s been great to hear in the words of the franchisors and Kevin the banker on the line how they’re using the system and the fact it’s working for them.  So we appreciate the opportunity.  And thank you, Beth.


Beth Solomon:             Well, thank you.  And there’s more information at where you’ll se BoeFly tools and solutions and other news and information.  I’d like to thank Steve Overholser of Great Clips, Charles Watson of Tropical Smoothie, Kevin Ellis of Atlantic Coast Bank, and of course Mike Rozman our Co-president and Chief Strategy Officer of BoeFly.  Thank you to our participants today and we look forward to providing more tools and solutions and working with you going forward.  Thank you, everyone.