Emily Maltby reports in the Wall Street Journal that Arthur Romanov and Irina Salgan opened their sixth Edible Arrangements fruit-basket shop recently to take advantage of low real-estate prices and easy-to-negotiate contractor bids.
Despite good credit and a strong track record, the longtime franchise owners weren’t able to secure traditional bank financing, as they had for past expansions. Instead, Mr. Romanov and Ms. Salgan used a lease-to-buy program offered by Edible Arrangements International Inc.’s year-and-half-old financing arm, Farid Capital.
As bank lending continues to be sparse, a number of corporate franchisers are providing financing arrangements and other aid to potential franchisees. Though business owners say they’re grateful for the assistance, many of the programs do come with strict terms.
Farid Capital’s lease-to-buy program requires most franchisees to contribute about 30% of the costs. But Mr. Romanov says he wouldn’t have been able to afford the $130,000 in start-up expenses without the $60,000 he requested from Farid. “We need all the help we can get,” he says.
The moves by franchisers to provide more aid come as many former top lenders, including CIT, Comerica and Banco Popular have severely curtailed their lending, says Ronald A. Feldman, chief executive at Siegel Financial Group, a business consulting firm in Conshohocken, Pa., that specializes in business acquisitions and franchise financing. What we’re seeing is that some franchises will now “provide credit enhancement to banks, such as partial guarantees on the loan,” Mr. Feldman says.
Others are helping candidates become more viable before heading into the bank. Dunkin’ Donuts has reduced some of the royalty fees the franchisee would pay, so long as the shop opens in targeted markets. Because franchisees pay those fees on the sales they make, they can show the lender “greater profitability and ability to repay with reduced expenses,” explains Grant Benson, vice president of franchising for Dunkin’ Brands Inc.
At the International Franchise Association, a trade group in Washington, spokeswoman Alisa Harrison says more franchises are brainstorming strategies, such as developing internal financing divisions. “Members have told us some of their highest-quality prospects are still having a tough time getting financing,” she says.
Banks are expected to lend $6.7 billion to franchises in 2010, an amount that is projected to fall some $3.4 billion short of demand, according to a study released in December by the IFA and FRANdata, a franchise research firm.
Read more at: Wall Street Journal