The State of Franchise Lending: Insight From Industry Experts

BoeFly has been helping both franchisors and franchisees accelerate growth since 2010. For franchisors, this means finding the most efficient way to diligence new franchisees. For franchisees, BoeFly delivers a more efficient and competitive funding process to help secure the financing needed to open.

We recently hosted a webinar where franchise lending experts shared their perspectives on various topics around franchise financing. Our panel was moderated by BoeFly CEO and Co-Founder, Mike Rozman, and included:

• Brooke Ingram, Senior Director of Funding Services, BoeFly
• David Canet, Managing Director of SBA Lending, ConnectOne Bank
• Gretchen Blake, Vice President of Business Development for Franchise, IRH
• Joe Barbato, SVP, National Relationships Sales Manager, First Bank of the Lake, Franchise Vertical Manager

Keep reading to get key takeaways from the webinar about what you need to know when financing a franchise business.

Understand your loan options

There are two types of loans for franchise financing:

• A conventional loan is offered by a private lender such as a bank or credit union and has no government backing. The lender typically takes a lien on what they are financing, like a new store build. If you can’t repay your loan, the lender will go after the business assets.

• A Small Business Administration (SBA) loan is also funded by a bank or credit union, but it’s partially guaranteed by the U.S. Small Business Administration. An SBA loan will sometimes require outside collateral, like a second lien on a residence.

As David Canet explains it, “The key difference between SBA and conventional loans is collateral. While conventional loans rely on business financials, SBA loans look at business operations, assets, and the guarantor’s strength.”

Know when to start the financing process

Thinking about how you are going to finance your franchise business early in the process is an important first step. By connecting with BoeFly right away, you will be involved from the beginning and get connected with the right lender suitable for your needs. “Many applicants assume it’s as simple as getting a car loan, but it’s much more complex,” says Brooke Ingram.

You can still start the financing process even if you don’t have your location selected yet. “It’s important to get pre-qualified early,” says Canet. “Your lender will adjust as plans solidify.”

Choose a strong franchise brand

The brand you invest in can make an impact on the financing available to you. “The strength of the franchisor is key in franchise lending,” says Canet. “A strong franchisor with good financial health provides confidence in the success of the franchisee. It’s one of the main factors we consider during underwriting.”

Joe Barbato adds, “Franchisors can be an important partner when things go wrong. If a franchisee is struggling, communication with the franchisor and lender can help resolve issues before they escalate.”

Qualify for funding despite past challenges

Not everyone has a spotless financial record. Having a history of business loss can present issues when applying for franchise financing. If this is you, it’s important to create a plan to show how you plan to recover from the loss that can be shared with a potential lender when seeking funding for your new venture.

Each type of loan has different requirements for funding those with historical losses:

• Conventional loans don’t rely on projections alone. According to Gretchen Blake, “Liquidity is critical here. If there’s a plan that shows how the business will recover, we might proceed, but generally, the stronger the personal and business financials, the better.”

• SBA loans are a little more flexible. Canet says, “If there’s a strong turnaround plan and the business has cash flow potential, we might be able to work with that. The key is to present a solid business plan backed by realistic financial projections.”

Plan for future growth

If you’re looking at franchise growth planning and want to open multiple units, be sure to discuss your goals with your BoeFly representative. “Typically, lenders want to see the first unit performing before financing a second one,” says Ingram. “Having a clear plan for multiple units, along with strong financials, can help you secure financing more quickly for future growth.”

“Communication is key,” adds Canet. “Keep your records clean and stay in touch with your lender.”

Let BoeFly help

If you’d like to watch the full webinar, you can find it here. If you are a franchisor that needs help speeding up the sales process or a franchisee that’s ready to find a lender, it’s time to connect with BoeFly. Click the link that best describes you below and fill out the form to get started.