BoeFly aims to finance the masses
Can BoeFly democratize the finance business?
As franchisors and bankers rush to court the multi-unit operators of the Grade A brands, who´s left behind? The regular person, interested in a lesser-known franchise, who would like to own a business but more often than not can´t get a loan. BoeFly´s founders want to help, one unit at a time. But can they make a difference in a bigger-is-better world?
It’s day two of an event to introduce 30 franchise brands to a roomful of lenders, and Mike Rozman and David Nayor, co-presidents of BoeFly and co-presenters of this April conference in Las Vegas, are gamely keeping up the energy. Brand after brand shows their video, then their slides, then their data points. They brag about their food, tout their average- unit volumes, praise their executive team, all to convince the financial crowd to lend money to their franchisees—and in the case of the lesser-known franchisors, to practically beg.
Mike Rozman, left, and David Nayor, are co-founders of BoeFly, the matchmaking service for business borrowers and banks.
This is franchise finance at its most basic, not the mega-deals for the high flyers with giant fees and blowout celebrations. Rather, it’s BoeFly’s mission to match every borrower with lenders willing to make a loan, and that’s the core service they’ve offered since starting four years ago: an online marketplace where business borrowers post a single application and multiple lenders compete to close the deal. If any of these franchises succeeds in making a match, Rozman and Nayor will be ecstatic.
“Every time we hear about that closed loan, we’re ringing the bells. It’s exciting,” says Nayor, BoeFly’s soft-spoken chief operating officer who used to trade equity options for a living, moving millions of dollars a day for a bank’s prominent private clients, but he was ultimately unsatisfied.
“Although it was the glitz and glamour of Wall Street, it became apparent to me I wasn’t producing anything,” Nayor says, something that came to bother him over time. He’s 38, the same age as the surprise winner of this year’s Boston Marathon, he offers in an interview the same week as the race. A long-distance runner himself, he prefers concrete results. “Seeing the expansion of a business or getting a business off the ground—trading is intangible. Small businesses are tangible.”
Tangible, yes, and also tedious, to hold the conferences, make the introductions, qualify the prospects, submit the applications, evaluate the financials, one by one by one. BoeFly aims to speed up the process, with its original online marketplace and now with a new trademarked tool called bQual. Their real mission is to get financing to the masses.
“We think the old way is broken,” says Rozman, the 6-foot-7 front man for BoeFly who churns out new ideas faster than his boss can evaluate them. That boss, CEO Bobby Tannenhauser, takes pride in BoeFly, and in his former career as a small-business lender, in getting capital to people who are shut out of the system, like women and minorities and young military veterans—and since the economic collapse, prospective single-unit franchisees. BoeFly “makes capital access available to everyone,” says Tannenhauser. “We’re democratizing the process.”
The trouble is the finance business—long geared toward funneling money to those who already have it—takes a long time to fix.
A simple goal
BoeFly keeps offices on the Upper West Side in New York City, blocks from the American Museum of Natural History, guarded by Teddy Roosevelt riding a horse (the statue, that is, made famous in the movie “Night at the Museum.”) Far from the business and financial hubs of Midtown and Wall Street, the neighborhood is beautiful on this spring day, lush and green and oozing old money and elegance.
BoeFly’s mission is to make “capital access available to everyone,” says Bobby Tannenhauser, CEO. “We’re democratizing the process,” but it’s a long road ahead.
Tannenhauser, BoeFly’s CEO, owns buildings in the area, including the spot around the corner that houses BoeFly’s offices and Nayor’s apartment. The office is workaday by contrast to its surroundings, with construction rattling the doors to make room for planned additions to the current seven-person staff. Rozman is in town for the interview and photo shoot, down from Needham, Massachusetts, where he lives and offices most of the time.
The vibe is casual. Ruby, a teeny but fierce dachshund dubbed “the office guard dog,” confronts every visitor. Rozman’s wife, Kris, and four kids age 8 and under troop in at one point, on their way to Central Park, on spring break. Caroline, Rozman’s oldest, leads the way, tall like her dad and looking every bit the future business leader. (Rozman says he often explains finance concepts to her, like their recent discussion of “fungible assets.” He didn’t reveal how fascinating she found their talk.)
Rozman is the idea man at BoeFly, including his first product that became the basis for the firm. He was working at JP Morgan, doing big business in global custody (that means helping wealthy investors hide—that is, safeguard— their money in suitable locales worldwide.) “I wouldn’t wish it on my worst enemy,” he says at first, then softens his stance—the people were smart, the company was impressive, but it left him flat.
“It was not the most compelling work. What we’re doing now is creating something,” he says, but he’s grateful the bank did fund his MBA studies in New York City and London. There he met a classmate with a doctorate in mathematics, and they started a company in 2003 to create scores for small-business lenders to use when evaluating prospects, called Edgeware Analytics.
“We had a simple goal. If we could get enough data we could help lenders make better credit decisions,” Rozman recalls. His first cold call was to Tannenhauser, who at the time was running Business Loan Express, which at its peak was the second-largest, non-bank lender in the country with a $6-billion portfolio.
David Nayor was working there, too. “Our goal was to become more efficient. We were closing only 30 percent of our loans. We wanted to apply Mike’s front end so we could unclog the pipeline,” Nayor says. Why? The same reason any bank, or any franchisor for that matter, tries to get more efficient. “It led to more profitability on the deal and we could get skinnier on the loan.”
Then came the financial crisis of 2008, which not only wiped out thousands of businesses in general, but in particular torpedoed Business Loan Express; as a non-bank lender, it didn’t receive any of the bailout money the federal government doled out to rescue the nation’s banks.
Soon enough Rozman started thinking about all those small-business owners also being shut out of loans, blocked from the capital they needed to survive, and his wheels started turning. “I went from a lender’s mindset to these poor small-business owners. How can we service them so they do not have to go from bank to bank?” he asked.
He noodled about the then-fledgling LendingTree, which matches consumers with banks that compete for the loan, and about Kayak, which matches people with people for romantic encounters. “How can we use technology to serve them?” was the question, and BoeFly was the answer, launched with equity from Nayor and Rozman, and major financial backing led by Tannenhauser.
The crash, in other words, gave birth to a brand-new service. “The crisis, although I would never wish that again, as a launch time for us there was a real need” for BoeFly, says Nayor, and they started racking up the numbers: $3.8 billion in loans posted since inception; 4,600 lenders part of the BoeFly network; 125 franchise brands as members; 30 to 45 percent growth in loan activity per quarter over the last two years.
In just a few years they’ve created a vibrant marketplace, and that pleases Rozman as a business owner, certainly, but even more so as an enthusiast of economic principles. “I’m a true believer in marketplaces; I’m a sucker for them,” he says, grinning because he knows he sounds nerdy, just like when he talks about fungible assets with his 8-year-old. “How does a borrower efficiently find a lender? I believe they benefit from going to a marketplace, rather than from bank to bank to bank. The marketplace works.”
Bob Mattice would agree. He’s a Liberty Tax franchisee in Liverpool, New York, who for 26 years did taxes out of his home as a sole proprietor. The IRS a few years ago started requiring sole proprietors to take a qualification test, a practice since stopped, and Mattice did so.
“We think the old way is broken,” says Mike Rozman about the franchise finance model. He has high hopes for BoeFly’s new tool, bQual.
Soon after, a sales rep from Liberty called to convince him to open a franchise, something he’d never considered. “At first I thought it was a hoax,” Mattice says about that phone call. After a visit to headquarters, where John Hewitt is CEO, he decided to bite—Hewitt, after all, is the co-founder of Jackson Hewitt as well as the founder of Liberty Tax, an impressive resume to a tax preparer like Mattice. But first he needed a loan.
As Mattice describes it, he submitted one set of numbers to the BoeFly folks, who helped him put together his business plan, profit-and-loss statement, pro formas and the rest of his financial story, and posted it on the site. Then he watched in real time as users logged in to review his application and make an offer. He received several responses and then secured a $63,000 Small Business Administration loan from the New York State Development Group, on a very tight time frame.
Mattice first met with Liberty last October and had to have his new franchise open by January 8 for the tax season. “The whole thing took me completely by surprise because I had no intention of doing this. Without BoeFly it would not have happened, because I wouldn’t have had time to go out there and find the financing,” he says.
Mattice is just the type of person who has the most trouble getting loans—he’d never before sought a business loan, he’d never purchased a franchise, and his franchisor doesn’t figure prominently on those “preferred franchisor” lists that so many big banks have assembled in recent years. But it’s not only individual business owners who can benefit from BoeFly’s services; bankers, too, use the service to expand their reach.
Morgan Johns, senior vice president of the SBA lending group for Conestoga Bank in Allentown, Pennsylvania, says his bank was looking about three years ago for “alternative channels to produce a pipeline of loans,” and then specifically an entrée into franchise loans, and came upon BoeFly.
Conestoga took a deal for a Kiddie Academy franchisee out of Baltimore and it turned out well. That led to meetings with Kiddie Academy executives to learn everything about the brand, which in turn led to today, when the early childhood educator is one of the bank’s preferred franchise groups with which they do loans around the country, far from headquarters.
The BoeFly service “allowed us to go from one or two brands to doubling and tripling that in two to three years,” Johns says. “It accelerated our exposure and growth in the franchise world.” Other preferred franchisors for Conestoga include Goddard Schools, Sport Clips, Great Clips, Arby’s, FastSigns, McAllister’s Deli and Hand & Stone—quality franchisors, to be sure, but not necessarily the type (like McDonald’s) where money automatically flows.
“A lot of the banks are chasing the same names,” Johns says. “BoeFly, to their credit, has disbursed those percentages across more brands, meaning the franchisors are finding more banks that are able to do deals for them.”
In other words the marketplace is working, which to Rozman means it’s time to invent again.
‘How do I create value?’
It’s BoeFly’s latest tool, called bQual, that Rozman is counting on most for the future of the company. BQual is a score BoeFly creates for an individual business borrower, to pre-qualify that borrower for a loan—just like the FICO score pre-qualifies individual consumers in the home mortgage market. That way borrowers know what kind of a franchise they can afford.
Bill Chemero is executive vice president for WayBack Burgers in Cheshire, Connecticut, and he calls himself “the guinea pig” for bQual, one of a handful of franchisors to jump on its debut when many said no. “I think the next wave of franchise development is to prequalify, just like in real estate,” Chemero says.
“It’s the 20-mile march for the last four-plus years that’s built this community, and we’re proud of that,” says David Nayor, chief operating officer of BoeFly.
He pays $79 to use it for a prospective franchisee, and “90 percent of the candidates say sure, because it’s not a credit report dinging you, so there’s no issue there. There’s no binding nature to it,” he says.
At $300,000 all in, WayBack Burgers is one of the most affordable franchises in the restaurant space, and Chemero uses bQual as a way to more selectively invite prospects to its Discovery Day, held toward the end of their process, and also to focus more on personalities and trainability on that day rather than worrying about financing.
“I don’t want the franchise sales department wasting their time,” he says. “There’s only so many million-dollar presentations a salesperson can do every day, so you want to make sure that hour is invested with the right candidate.”
Charles Watson, vice president of franchise development for Tropical Smoothie in Atlanta, has used bQual for selected prospects for a couple of months. “I think it may well be a game changer,” Watson says, although he’s actually a bigger fan of BoeFly’s main service, the matchmaking platform.
“It’s extremely tough” for any franchise other than the very largest to get a preferred relationship with a banker, he says, although now that Tropical Smoothie has 385 stores the task is getting easier. “Five years ago there was nothing.”
He praises BoeFly for organizing road shows, like the one described at the beginning of this article and co-presented by Franchise Times, where franchises present to lenders, for “giving smaller or emerging brands access, because the biggest thing with a banker is, ‘what the heck is a Tropical Smoothie.’”
For BoeFly the problem is “what the heck is a bQual,” which Rozman worked for 18 months to secure the contract to provide. Although their CEO doesn’t worry about someone else swooping in to provide the same tool—“Good luck,” he says wryly, “Let them go through the brain damage”—he does think someone with more money and marketing power could gain more attention and hence rise as a competitor.
Nor does he worry over the relatively low cost of BoeFly’s services. They deliberately do not act as a broker on deals and so take no fees from the transaction, as they believe that runs contrary to their role as neutral matchmaker. That leaves them to charge modestly— $1,500 to $10,000 for a franchisor’s annual membership fee, for example, based on the number of opened units, or $99 a month membership fee for lenders—not the kind of numbers that make financial types swoon.
“If you give a quality product at a reasonable price, in the long run we’ll succeed,” Tannenhauser says, dismissing the big hedge funds and investment banks that make outsized fees. “I don’t see that they add anything to the economy.”
Meanwhile Nayor and Rozman take satisfaction in serving the ordinary operator, one person at a time. “It’s the 20-mile march for the last four-plus years that’s built this community, and we’re proud of that,” says Nayor.
As for the glitzier lifestyle left behind, the kind glorified just blocks away in the heart of Wall Street, good riddance. “How do I create value?” is Rozman’s favorite question. “Life is short. What fulfills us is helping those small businesses.”