“A Jump Start for Franchisors in 2003”		«BACK
	by Dennis L. Monroe
	from Franchise Times, January 2003 Issue

The following are ways to jump-start development:

General Ideas:

1. Franchisors should provide each franchisee with a "Needs Analysis" survey. This survey gives the franchisee the opportunity to provide the franchisor with an idea of their expectation as to development, financial needs for development (whether senior debt or equity), refinancing needs and a discussion of restructure or over-leverage concerns. This should be an open sharing of information by all franchisees so the franchisor can compile a financial needs analysis for the franchise community.

2. In addition to this Needs Analysis, the franchisor should invite a representative sample from among the franchise community (both large and small, well capitalized and under-capitalized) and hold a round table where the franchisees provide input to the franchisor as to their present and future financial needs.

3. The franchisor should also invite key senior lenders and potential equity investors to this round table. The financing sources should be asked what it would take for them to provide significant financing to the system.

4. Franchisors should make sure their franchise system is listed on the SBA Registry. This registry provides the only real source of financing for the first one or two units for a franchise. Registration should be done early in the year and stated in your UFOC.

Ideas to Incorporate Into Your UFOC:

1. Reflect in your UFOC the yearly steps taken with the franchise community to help with financing. List the steps as stated above (for example, the round table, the surveys, bringing in lenders, etc.). This information will show the franchise community how important they are and be a positive tool within the UFOC. This proactive approach is not a legal commitment: Do not forget the UFOC is both a legal document and a selling tool.

2. Evaluate the current capital requirements imposed on the franchisee. These requirements should be modified in light of the current lending environment. The franchisor may need to be up front and provide for greater equity requirements for new franchisees and development by existing franchisees.

3. The franchisor should provide creative, state-of-the-art financing techniques in the UFOC. For example, list the specifications of lender assistance agreements. These can take many forms from merely intercreditor rights to full remarketing agreements. Allow an assignment for lenders of franchise rights and allow for a careful, but selected, assignment to lenders of the equity interest of the franchisee.

4. Look to attract equity investors by not requiring equity investors to sign on the franchise agreement (as long as the franchisee is adequately capitalized).

5. Consider providing incentives to lenders who make franchisee loans by providing loss reserve provisions for such loans where the franchisor pays off some of the last loss in any franchise pool.

6. Create a financing pool fund for sale/leaseback. If the pool cannot be created, look at having approved sale/leaseback groups reflected in your UFOC.

7. Establish lender equipment financing packages, which are reflected as attachments to the UFOC.

8. Allow the use of ESOPs. Again, this is potentially a great source of franchise financing.

9. Allow franchisees the opportunity to have a divergent ownership of the real estate and operating assets.

10. Allow franchisees the ability to have varying corporate structures; in particular, make sure the UFOC provides for the use of limited liability companies and other flow-through entities.

Now is the time to evaluate your franchise program. Look at your UFOC as a selling and financing tool. After all, franchising is by definition a form of financing.