| “Financing
Needed - Remodels or Upgrades on Your Franchise
Unit” |
«BACK |
 |
by Dennis
L. Monroe |
|
| |
from Franchise
Times, April 2000 |
|
| |
|
|
| |
|
|
All franchisors require periodic upgrades and remodels of a franchise unit. Increased competition and ever-changing consumer preferences are driving franchisees to make these changes with greater frequency. I know of one major QSR chain that decided to change its entire cooking system, then several years later went back to its previous system. The franchisees that had stored, rather than disposed of, their old cooking systems were in luck because they could put the stored equipment to use once again. Even if the franchisors do not require frequent upgrades, almost all units need new and improved point-of-sale systems. In any case, new and better is a way of life.
Improvements and capital expenditures may provide needed sales increases, but how do you finance all of these wonderful improvements? This question may be particularly troubling if the franchisee has a securitized loan on its unit, or has an additional indebtedness restriction from its existing lender. I have seven suggestions:
1. Look to see what the franchisor is doing. If the franchisor expects periodic and substantial changes or upgrades, the franchisor must help provide financing or access to financial sources. I recently heard one major franchisor tell a group of lenders that the cost of a franchisee-wide remodel was the franchisee's problem. This is not true; it is everyone's problem. Franchise associations must get involved with their franchisors to come up with solutions.
2. Consider equipment leasing. There are many niche equipment leasing companies that can provide creative leases on everything from point-of-sale systems to wall hangings. In most cases, they can work around existing lender positions. Word of mouth is the best way to find these companies-talk to your lenders, to other franchisees, and to your professional advisors.
3. Go to your existing lender to see if the lender is willing to redo the existing loan or to release some collateral to pledge for the cost of the upgrade or remodel. Your lender wants you to succeed and a prudent lender will help facilitate needed improvements.
4. Look to the vendor who supplies the new equipment you may be adding. In many cases, a franchise system selects certain vendors to provide equipment to the franchise community. If these vendors want significant business, they should help in the financing.
5. As more and more securitized loans are made, there are many lenders who are looking for ways to loan behind the securitized loan. Finance companies are creating new programs, which may be a bit more expensive than normal senior loans and have a shorter amortization, but which do provide the necessary money. Call the recognized lenders in the franchise industry and inquire as to ways around loan programs.
6. Local banks. In many cases money may be provided with a personal guaranty on a short-term basis from a local bank. The bank may desire the deposit relationship and consequently accommodate a short-term loan.
7. High Yield Lenders. The proposed remodel should generate additional unit cash flow. A high-yield lender or mezzanine lender who looks to cash flow for repayment or collateral may be a viable option. In particular, look to Small Business Incentive Companies (SBICs) for this source of financing, or to other recognized industry mezzanine lenders.
Improvements and remodels are part of the life of a franchisee. Financing is not always easy, but there are options. In fact, there are new options every month from creative lenders.
|
