For franchisees with three or four stores ready to grow, there has been a historical struggle to arrange solid financing.
It is common for growing franchisees to finance their businesses by using programs offered through the Small Business Administration (SBA), however they are now at a point where their lenders are no longer comfortable making loans based on “business value” or cash flow, even with an SBA guarantee.
These franchisees may have turned to the lenders to the bigger franchise players, where they were promptly turned down. Reasons include not enough units, not enough revenue, loan requests too small to consider, or they are not part of a top-tier brand.
Too big for SBA, too small for the big lenders.
“This is exactly where United Capital Business Lending steps in to fill the gap,” says William Johnson, SVP, sales. “We hear from franchisees concerned about falling through the lending cracks. United Capital is that niche lender, backed by Bank United.”
Providing financing to growing operators in the quick-serve space requires a deep understanding of the industry and intimate knowledge of the brands.
"Our multi-faceted approach involves restructuring a borrower's balance sheet and providing a custom solution for immediate needs."
A business’s ability to consistently generate strong cash flow allows United Capital to lend based on the “enterprise value” of franchisees’ stores. In most cases growing operators have significant enterprise value they can leverage to refinance highly restrictive SBA debt and other less competitive financing, which may have been put in place in an operator’s early years. United is also ready to provide development lines to franchisees for situations such as financing several new locations over the course of a few years.
United targets specific loan amounts from $500,000 to $10 million, lending to large, established, multiunit operators; United is not lending to operators with fewer than three units and fewer than three years of operating results.
While other lenders have loosened up over the past few years, they still may be tough about lending to United’s target market, says Johnson. “We are the right lender for established operators who have solid plans in place for development, perhaps opening three or four stores over the course of the next two years,” he says.
“These development lines (or future commitments) are lines of credit we establish for the operators to tap into as needed while they finance their build-outs. The lines of credit are extended subject to our borrowers meeting certain conditions up front.”
United helps in other ways. “There are still franchisees who have done nothing to clean up their balance sheets and consolidate their debt,” Johnson says. “They are busy running their businesses, and they really do not spend the time to look at their options. Our multi-faceted approach involves restructuring a borrower’s balance sheet and providing a custom solution for immediate needs.”
One of the more attractive aspects to working with United is that the company deals with not just the top-tier franchise names but the mid-tier names, as well. “Some lenders just don’t want to deal with those brands, but they are our bread and butter,” says Johnson.
“Our goal is to help these middle- and top-tier companies grow deliberately. We help them establish that growth plan with our development lines. At the same time, the detailed process they go through, with our help, controls future funding risk. We put a solid plan in place, help them identify and understand strategic goals and lay out the steps to both the development and financing that development,” says Johnson.
For more information about franchising opportunities with United Capital Business Lending, visit unitedcapitalbusinesslending.com
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