E02: Franchise Financials! with Sam Phelps

Hosts: Michael Hyam and Liane Caruso  
Guest: Sam Phelps from Tenant Financial Group

This episode delves into the intricacies of franchise financials, especially in light of the SBA (Small Business Administration) discontinuing the franchise registry. 

Key points include the importance of communication and collaboration between franchisors and franchisees, the criteria banks consider when funding franchises, and various financing options such as SBA loans, private lending partners, and personal financial positions. 

Emphasis is placed on preparation, proactiveness, and communication to streamline the loan process for franchisees.

Podcast Summary: “Complexities of Franchise Financials and Financing”

KEY TOPICS DISCUSSED

SBA Lending and Franchise Registry Impact

Continuation Despite Changes: Despite the SBA no longer maintaining the franchise registry, franchise lending has continued relatively unchanged, with experienced banks adapting to new documentation requirements.

Factors in Funding Evaluation: Banks consider a range of factors, including credit scores, financial strength, and potential deal killers like bankruptcy or criminal history.

Banking Criteria for Franchise Funding

Beyond Credit Scores: Banks look at overall financial strength, including outside income and liquidity.

Personal Financial Documentation: Banks may request detailed personal financial documentation and view issues like bankruptcy and foreclosure as significant risk factors.

Franchise Financing and Risk Mitigation

Historical Financial Representations: Using financial representations from other locations and brands helps mitigate risks for lenders.

Alternative Funding Options: Alternatives to high-interest loans include 401k rollovers and leasing, with a noted increase in Rollover Business Opportunities (ROB) due to economic factors.

Streamlining the Loan Process

Communication and Preparation: Effective communication and proactive preparation are key to speeding up the loan processing time. Early preparation of plans and permits can avoid last-minute changes and delays.

Insurance Recommendations: Early acquisition of life and business insurance is advised to avoid delays in loan approval.

SBA Loans and Other Financing Options

Extended Repayment Periods: SBA loans offer extended repayment periods but come with specific fees and collateral risks.

Legal Advice: The importance of seeking legal advice when dealing with SBA loans and liens due to potential severe consequences.

Licensing Challenges: Obtaining licenses, especially in healthcare and service industries, can be challenging, but expediting strategies include contacting governing bodies and scheduling inspections.

Interested in listening to the podcast episode? Tune in on Spotify!