QSR reports that an innovative lending model that leverages the assets of a franchisor might be the answer to operators’ woes in this post-recession climate.
Culver’s, Marco’s Pizza, Finance, FranchisingIt’s no secret that running a restaurant is a risky business. The fact that many restaurants will ultimately fail early in their existence is not lost on most entrepreneurs, and yet they carry on anyway in hopes that their restaurant dreams can be made true.
The risk inherent to opening a restaurant—both mom and pop and franchise—has made the post-financial-crisis period especially hard for operators, as they find it exceedingly difficult to secure financing. Commercial banks have tightened their lending policies across the board, and their assessment of the restaurant industry as a particularly risky investment has thwarted the expansion ambitions of many brands in the quick-service sector.
In this climate, quick-serve franchises have been forced to get creative in order to push on with expansion. One brand in particular, Marco’s Pizza, epitomizes that reality.
Based in Toledo, Ohio, Marco’s operates more than 220 stores in 17 states. In the last 18 months, the company has pursued five alternative financing options in an effort to realize its growth goals. Most recently, it enrolled in a lending program created by Bancorp and Franchise America Finance that all three parties are heralding as the next great financing model for restaurants.
The program works like this: Franchise America Finance vets a franchisor based on its business model, franchisees, and real estate selection processes. The approval process requires more due diligence than banks tend to do when processing a loan application, but franchisors that make it into the program are able to get their operators reliable access to financing provided they meet certain predefined qualifications—a dream come true in today’s credit climate. “Financing has become that black hole that no one knows what’s going on with it,” says Ron Feldman, cofounder of Franchise America Finance. “We created this program to allow the approved brands to have a predictable finance model once again.”
Marco’s was the second franchisor enrolled in the program. The company first had to submit to analysis by FRANdata, the Small Business Association (sba) watchdog, per Franchise America Finance’s vetting process. After being approved, Bancorp agreed to lend Marco’s $9 million in SBA loans—$6 million for new stores and $3 million for resales or refinancing of existing stores. Marco’s franchisees that meet the predefined qualifications still have to go through an approval process with Bancorp, but the process is much quicker than through the traditional lending model.
Read more at: QSR