Should Franchisors Do Lending Programs?

More franchise systems have been using lending programs in recent years to stimulate financing amid a tight lending environment and growing demands to remodel locations or jumpstart growth. But such programs are not everybody, according to Sharon Soltero, vice president of franchisor relations for Infinity Franchise Capital.

Soltero, who spoke at our Franchise Finance & Growth Conference at the Four Seasons in Las Vegas this week, has worked on a number of such programs. She began her presentation by saying this: "You don't want to do this."

"You won't do this," Soltero added. "It's a heck of a lot of work. If you think it's going to be a lot of work, double it. If you're going to do it and do it right and be successful at it, it's going to be difficult." Such programs, she said, can take anywhere from six weeks to three months to get off the ground.

Perhaps the first piece of advice Soltero gives to franchisors interested in lending programs is to make sure they can legally do such programs, or are willing to do what it takes to do those lending programs. Soltero said she has "wasted a lot of time" with franchisors interested in a lending program, only to have them come back and say that they can't, or won't, do such a program.

In many cases, franchisors' own loan covenants won't let them guarantee portions of loans, or their own legal departments have concerns, or their boards get cold feet.

Franchisors that do such programs should guarantee portions of loans, as a number of franchisors in the restaurant business have done recently, because that makes lenders more comfortable. It also improves rates in the program, which can boost participation and ensure that the effort works. In addition, franchisors that guarantee portions of loans are more active in ensuring that the program works, than are those that don't have such a guarantee. And active franchisors are key to a lending program's success.

Indeed, when done correctly, financing programs can be a good thing. They speed up remodeling efforts—Burger King's program, for instance, is given considerable credit for speeding up the company's remodeling program. It can also kickstart development, as Denny's experienced when its $40 million lending program helped franchisees convert 140 family dining restaurants in Flying J Travel Centers.

Perhaps, best of all, such programs can improve a franchisor's relationship with franchisees.

But, again, these programs take work. And the work doesn't stop when the program is created. Franchisors have to market the program to make sure it gets used, and they have to monitor the program daily and evaluate it to make sure there are no defaults and that the terms work.

Done right, Soltero said, franchisors won't have to step in and operate the restaurants that struggle or pay back portions of loans that default. "I've been involved in three or four lending programs," she said. "None of them ever lost a dime. Why? Because they were  done right. They were done with active participation of the franchisor."

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About This Blog

News, notes and commentary on franchise financing, including SBA lending, both the SBA 7(a) program and the SBA 504 program, franchise finance programs, development incentives, big deals and startup lending.

  Mary Jo Larson is the publisher of Franchise Times Magazine and its sister publication, the Restaurant Finance Monitor. She is a frequent speaker at meetings and conferences, and at the Restaurant Finance & Development Conference. You can find her on Twitter at @mlarson1011.
  Reporter Jonathan Maze covers restaurants and finance for Franchise Times. He also writes for our sister publication, The Restaurant Finance Monitor, and writes a daily blog on the restaurant industry at You can also catch him on Twitter at @jonathanmaze.




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