Our Finance program is relatively simple. We offer a fixed rate, 84 month (7 year) loan. At the current time our program covers loans from $150,000 to $5,000,000 with an average transactions size of approximately $450,000. The applicant should have already signed a franchise agreement. We offer loans to qualified franchisees. Pre-qualification services can be offered under a separate program and we would be happy to discuss the cost\benefit of using our pre-qualification services.
Unlike banks or the SBA we do not require the applicant to pledge Real Estate or other collateral. The FLD program is focused on cash flow, not a collateral. We understand franchising and our underwriting and due diligence take a hard look at how the franchise brand and the location will produce enough cash flow to meet the debt service on the loan. We also consider how the applicant will manage living expenses and meet mortgage obligations, personal tax payments and other family and financial obligations that have to be met.
We do not require the franchisee to have direct experience in the segment from which they would like to acquire a franchise. While this would undoubtedly be helpful we never really understood imposing this as a “requirement” to qualify for a loan. Why purchase a franchise if one has that much experience? We like to see overall management experience and business acumen but the fact that you never directly managed a restaurant or personally repaired an engine, will not disqualify you from our program. That is one of the primary reasons that we are careful about the franchise systems with which we do business. We look for franchise systems that provide superior training and guidance for the franchisee.
Credit is important also but it is not the only thing we consider. An applicant can have the highest credit score available and not be qualified to own and operate a franchise. For the most part we count on the Franchisor to determine this however if our due diligence reveals that a franchise applicant is not really prepared to take on the responsibility of owning and operating a business they may not be a fit for our program.
We consider all aspects of the transaction including credit (and credit score), available cash and liquidity, overall tangible net worth, experience (both direct and indirect), location and demographics, track record of the franchise system, cash flow and\or potential cash flow, household expenses, personal and business leverage, and past history to include business successes and failures.
Our customer tends to be the applicant that is more interested in building a business rather than “buying” a job. These are generally applicants who understand the difference between leveraging one’s assets to grow a business and pledging one’s assets to collateralize a single loan. As such, even in the case of a startup, the applicant will have signed a “development“ agreement for multiple locations.