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By Molly Klein • September 18, 2017

Rainmaker Roundup-September 2017: Couldn’t I just get an SBA loan from my bank?

Tackling Another Common Question: Can’t I just go to a bank?

Below is a transcription of the September 2017 Rainmaker Roundup.  Recorded September 8th, 2017 by Storm Miller, National Account Manager at Benetrends Financial.

I like to use this time to highlight some of the more complex business purchases Benetrends has helped to finance over the last month. But building on the momentum from last month, I thought I would review with you another set of financing questions we have received from both our recently engaged clients as well as a few of our partners. What I would like to tackle today is the frequently asked question: Couldn’t I just get an SBA loan from my bank?

Now this can be a tough question to answer with a direct yes or no. Benetrends will never advise a client not to work with a local bank, especially is there is an existing relationship with that bank that the borrower can leverage. However, what I thought I would share today are some of the common reasons that our clients have their applications turned down by banks when they attempt to apply for financing without the assistance of Benetrends. More and more of our candidates are now bypassing applying for SBA loans as individuals and relying on the expertise provided by the Benetrends SBA team to secure their loans in a painless and timely manner. Below are just a few of the reasons our clients have highlighted for their applications being denied:

Reason #1: “No experience in this industry.” Most of our clients entering into franchise ownership have very little to no direct experience in the industry into which they plan to open their franchise. And as a matter of fact, I work with a number of brands who prefer for someone to have no direct experience in the industry. If a borrower had direct experience, there would not be much of a need to buy into a franchised business model. When lenders turn down applications for this reason, this tells me they might not have a lot of experience financing franchise purchases or that they might not fully understand what franchising is about. Here at Benetrends, we work with both major national lenders as well as smaller local lenders that understand how the franchise model of business works and that buying franchise model helps mitigate the borrower’s potential lack of experience in that industry.

Reason #2: “We are not familiar with this franchise.” Most banks consider any franchise brand with under 50 units in operation (sometimes this number is 100) to be an “emerging franchise brand.” This means for the most part, they view these franchises under the same scope as a non-franchise startup, and these are typically more difficult to secure financing for. The fact is, the majority of franchise systems never cross the 100-plus unit threshold. Therefore, the majority of franchise concepts are viewed by most lenders as emerging brands. To combat this, Benetrends does a deep dive into the FDD of each and every brand we represent. We get a firm understanding of the business model and the branding and not only do we pitch the borrower to our banks, but we pitch the franchise concept as well. That is what has led to our success to securing financing for all of the emerging brands we have helped become mature brands over the last 35-plus years.

Reason #3: “The borrower is not going to be the operator/the business is in another town.” Every bank’s credit box is a little bit different from the next. All banks have different appetites for businesses in different industries and different types of business models. Some banks prefer the owner/operator business model, while others prefer the semi-absentee model as it allows the borrower to continue to bring in outside income through other gainful employment. In this scenario, the borrower will not be relying on the business to cover his/her personal expenses and this could strengthen the application. Benetrends has been able to secure financing for plenty of business owners who do not run the day-to-day operations of the businesses they own. If this is the case, it is important to address this is in the business plan and provide a resume for the full-time general manager and if there is going to be one, the assistant manager. Thus we are able to help mitigate any concerns the lender may have about who is going to be running the business.

Reason #4: “The bank would not pre-qualify us for multi-unit financing.” It is extremely rare that a bank will providing financing for the buildout of multiple units at the same time. The only cases we have seen this occur when a borrower has previous experience owning and operator multiple businesses within the same system. Also, as a way of mitigating their own risk in the franchise purchase, banks tend to want to soak up all of a borrower’s liquidity and collateral when financing the first unit. This often leaves borrowers cash or collateral-strapped when it comes time to break ground on their second unit. Benetrends understands what a multi-unit financing strategy looks like and devises a plan and sets benchmarks with our lenders that allow for franchisees to fund multiple units as they bring each business into cash-flow positivity.

These are just a few reasons that more and more franchise candidates have chosen to utilize the expertise of Benetrends Financial.

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