Written on June 29, 2011 at 5:51 pm, by Rich Kolman
Tom West was kind enough to allow me some space on the pages of BBPInc.com, and I put up and article entitled “Business Brokers Must Adapt to Survive the Nation’s Long-Term Small Business Credit Crisis”.
My dictionary defines “adapt” as “adjusting oneself nimbly and effectively to new and different environmental conditions.” And while there may be several ways to adapt to the severe shortage of bank loans for qualified purchasers of existing small franchised and non-franchised businesses, I am qualified to help educate you about one particularly adaptive strategy.
Written on June 21, 2011 at 9:49 pm, by Rich Kolman
Below is a link to a nice article about Franchise Note Buyers, appearing in a recent edition of Restaurant Finance Monitor. We are are happy to the nation’s first company specializing exclusively in providing lump sum cash for seller-financed notes that were created upon the sale of a business. If you’re looking for an exit strategy, an owner-financed note attracts more buyers willing to pay more for your business. Franchise Note Buyers is working with business brokers, some of the nation’s best known franchise networks and with independent business owners who have a business note for sale. So if you’re looking to sell your carry-back note or if you’re thinking of creating a seller financed note to help you sell your business, call us and we will buy your business note.
Written on April 13, 2011 at 8:32 pm, by Rich Kolman
They say a picture is worth a thousand words, so I’m uploading a photo of yours truly from March 8 & 9 Franchise Finance Conference produced by Franchise Times. As reported earlier, the main takeaway point from this conference is that, for the foreseeable future, competition will remain fierce for small business loans, including bank loans to franchisees.
If you are a franchisor, you had better help your franchisees get bank loans and improve the creditworthiness of your franchise brand. Otherwise, you won’t be able to open new franchises and your franchise transfers (resales) will languish – which will risk more closures and more drag of your systemwide same store sales. As reported here earlier, Frandata projects that the multi-billion dollar gap between supply and demand for franchisee loans in 2011 could be as high as 31%. Ouch!
This credit crunch message is carrying over to the nation’s business broker community. We’ve been asked to be an exhibitor at the International Business Brokers Association’s annual convention on May 12 & 13 – and it looks like we’ll be there. We’ll be reinforcing one of the key messages at this conference – seller financing is the key to accelerating small business resales.
And the key to giving sellers the confidence to carry back seller financing is for them to know, before they commit to their sale, how much cash they will extract from the sale of their carry back note onto the secondary market. Brokers – including the professionals at Sunbelt and FranchiseResales.com, are turning to us for top dollar cash-outs for their clients.
Written on April 12, 2011 at 10:48 pm, by Rich Kolman
On April 7, I was among the 150 or so invitees attending the Small Business Finance Summit sponsored by the International Franchise Association (IFA). It was a diverse mix of key stakeholders in the small business, franchising, financial and government policy/regulation communities. I was there to represent the interests of those small business owners (including franchisees) and franchisors looking to the secondary (sale of loan) note market as a means of getting deals financed without bank loans.
There were talks by U.S. Senator Mary Landrieu (Chair of the Senate Small Business Committee), SBA Administrator Karen Mills, and Martin Gruenberg who is Vice Chair of the FDIC Board of Directors. There were panel discussions with franchisees and franchisor executives from top brands like my former companies McDonald’s and UPS (The UPS Store).
Geoff Colvin, Senior Editor at Fortune Magazine, moderated one panel of bankers and pointed out a glaring disconnect between the views of banks – “we want to make small business loans” – and everyone else, who said access to bank credit remains as difficult as ever. The second half of this jam-packed event was spent trying to peel back the onion and discover why there is such a dramatic difference in perception about the availability of small business loans – between bankers and everyone else.
One point came through clearly. Banks are under such tight liquidity regulations now that it has become more difficult for them to make loans without fear that in doing so they’ll undermine their ability to comply with such regulations. Banks need to make loans in order to make profits. But their mindset, when it comes to small business loans, remains “don’t lose money” and not “make profits.” Experts project that for the next 3 to 5 years, access to credit will remain extremely difficult for small businesses.
I was happy to accept IFA President Steve Caldeira’s invitation to remaining on his post-Summit working group, as solutions are explored in greater depth. The banks have acknowledged that the strength of the secondary market – especially the ability to sell loans (notes) to companies like Franchise Note Buyers who do not require the assignment of SBA loan guarantees – is critical to the health of the primary lending market.
My primary interest in getting involved in these governmental and regulatory affairs is to make sure that the secondary market remains fluid – compared to the frozen primary lending market. Some day banks will start lending at normal levels again to small businesses. But until then, our customers (franchisors, banks and small business owners) are learning from us that deals can get financed without bank loans – transferring some power from the banks back to business owners.
Written on March 23, 2011 at 5:57 pm, by Rich Kolman
On 3/22/11,the International Franchise Association (IFA) published a lengthy report prepared by Frandata titled, “The Impact of the Credit Crisis on the Franchise Sector.” If you work for a franchisor – or if you are an existing or former franchisee, you should sit up and take note of this report’s findings, which include:
A predicted shortfall of more than $2 billion or 20%, in lending to franchise businesses in 2011. Banks are forecasted to lend $8.4 billion to franchises in 2011 versus the $10.4 billion that would meet 100% of the demand. But Frandata qualifies this projection by allowing for an even worse scenario; i.e., that banks might only loan $7.2 billion to franchises; this would increase the $2 billion franchisee loan shortfall by another $1.2 billion.
“Competition for financing [for franchised businesses] will remain tight [in 2011] as lenders remain risk averse and credit standards have not changed since 2009.” For the past three years, banks have focused on not losing money – compared to making money — on small business loans. For the next three to five years, Frandata projects that this will continue to be the banks’ collective mindset, especially for the loans under $300,000.00.
Frandata projects that the shortfall in franchisee loans will cause “unsustainability” of 10% of all franchises that “need to transfer” in 2011. In other words, thousands of franchises will continue to close during this prolonged credit crisis, because new re-energized buyers weren’t able to obtain bank loans to fund their resales transactions.
So what is the relevance of these Frandata findings, if you are a franchisor or existing franchisee?
Because the small business credit crisis will linger on for at least the next 2 or 3 years, we project a continuing trend of financing franchisee transactions without bank loans. In other words: (1) more franchisors will lend monies to their franchisees; and (2) more franchisees will carry back seller financing to facilitate their franchise transfers.
As buyers of these loans (notes) from franchisors and franchisees, we’re helping franchisors and franchisees eliminate the downside of acting like a bank after their strategic goal of getting their deal done has been accomplished. If you’re a franchisor or (former/existing) franchisee, give us a call so you can fully appreciated how powerful the secondary note market works in helping you achieve your goals.
Written on March 16, 2011 at 5:26 pm, by Rich Kolman
Houston, we have a problem…One Banker stated: “No one wants to loan below $250K…”
Last week, I joined 200+ franchisor executives and franchise service professionals (bankers, etc.) at Franchise Times’ annual Franchise Finance Conference. This was my first FFC and I was impressed by the quality of speakers, materials, attendees, networking opportunities, etc. So kudos to Franchise Times!
Presentation topics included “How Do I Attract Banks and Other Lenders to My Franchise System,” “What Are Lenders Looking For By Way of Franchisor Support,” and “How Can Franchisors Help Franchisees Get Financing.”
This conference confirmed that, although 2011 might be slightly better than the last couple of years, it remains extremely difficult for small business owners – including franchisees – to obtain bank loans. The lack of credit access for franchisees remains the #1 challenge in the franchising industry. Turning around this small business Credit Crunch might as important as anything else to improving the overall economy.
Bankers on various panels frankly confessed that there was a “hassle factor” with loans under $250K or even $300K – which is a good size portion of the franchisee credit market! (A direct quote: “no one wants to loan below $250K.”) There was an expressed desire for underwriting few higher dollar loans (e.g., $500K to $1 million). There was a desire for 25% or 30% franchisee cash equity, high credit scores, and other “risk mitigation” indicators.
No surprise, bankers expressed a preference for experienced franchisees with successful track records, compared to: (1) prospective borrowers without owner/operator experience; or (2) franchisees of new (or newer) franchise systems. The audience was asked to “think like a lender” and adjust to the “new normal” where there will remain, for the foreseeable future, a much greater demand for, than supply of, small business loans. One speaker described his bank being treated badly by a franchisor in the 80’s and 90’s…and because “what goes around comes around,” that franchise system won’t be getting loans from that particular bank. Karma, indeed!
We were all reminded that banks “need” to make a profit – and of course they do, so does everyone else! But for some in the conference’s audience, an old adage came to mind: “A bank is a place that will lend you money, if you can prove that you don’t need it.”
Franchisors were encouraged to take a much more proactive role in helping their franchisees obtain financing. As more than one speaker noted, “franchisee capital access is your problem.” As franchisees compete over tight credit, banks are increasingly analyzing the franchisor’s system performance and asking whether that franchise system itself is creditworthy.
A few franchisor executives I spoke with after the presentations put it this way. It might be easier to be sympathetic to the current needs of banks (and bankers) if our nation’s banking system hadn’t played the leading role in collapsing not only the small business credit markets, but the entire economy. Those sentiments aside, franchisors took careful notes at this conference and expressed a willingness to dig in, up their game and help their franchisees compete for those bank loans.
A bit now on what was not discussed during the Franchise Finance Conference presentations
Namely, the critical importance of the secondary market to the health of the primary (franchisee) credit market. Think about it this way. If a private investor is willing to purchase a franchise-backed loan from a bank – even without an SBA guaranty, that bank now has an insurance policy of sorts. They have greater an ability, on the front end, to generate more franchisee loans, knowing that there is a clear pathway for liquidating some of their portfolio when they deem necessary.
Another old adage is “When you’re a hammer, everything looks like a nail.” So, just like bankers, lawyers, franchisees, franchisors, or whatever you do for a living, I view the nation’s small business credit crisis from my own deeply entrenched perspective. And my perspective is that of how the secondary promissory note market can be unleashed in the franchise industry to get thousands of more deals done faster for the benefit of franchisors, franchisees, and traditional franchisee lenders (banks). And by getting these deals done faster, the secondary note market can help spur growth for franchisors and for the franchise industry as a whole.
The International Franchise Association (IFA) just announced that it is hosting a Small Business Lending Summit on April 7 in Washington DC. Your intrepid reporter will be there to participate in the conversation of how banks, franchisors, franchisees – and yes, the secondary loan market – can collaborate with government and regulators to accelerate the nation’s economic recovery. At this “by invitation only” conference will be leaders from the White House, including the President’s Chairman of the Council of Economic Advisors, Austan Goolsbee and many others, including a couple of distinguished U.S. Senators.
Leading up to this conference, I hope to discuss with you here some of the key points about the secondary business note market that I will be sharing with my fellow invitees at this Small Business Lending Summit. So stay tuned…and thanks for staying connected here to Franchise Note Buyers.com.
Written on March 3, 2011 at 6:53 pm, by Rich Kolman
Creating Innovative Solutions to the Franchise Funding
During this continuing Credit Crunch when bank loans to franchisees are more difficult to obtain, there are some entrepreneurs searching outside of the box to solve their funding problem, for the purchase of new or existing franchises. I noted in a previous blog post that some franchise industry leaders at the IFA Convention were pointing the way to innovative, unconventional solutions in the area of franchisee financing.
One example, is the speakers and attendees at the workshop and companion round table discussions, titled “When the Franchisor Becomes the Banker: Best Practices for Franchisors Providing Financing to their Franchisees.” Here, we learned that some franchisors were not content to rely solely upon optimizing the creditworthiness of their brand for bankers….although there is certainly nothing wrong with franchisors making those efforts, which include seeking Business Credit Reports (BCR’s.)
We learned that a growing number of franchisors are exploring alternative financing beyond the loans provided (or, in the real world–not provided!) by banks and traditional lending institutions. Some franchisors have become lenders to their franchisees – and many more are considering doing the same. The loans might be for (1) the sale of franchisor-owned units to franchisees; (2) franchisee build-outs of new franchises; or (3) franchisee-to-franchisee re-sales (transfers).
At the round table discussions, some franchisors said they were already lending to their franchisees and have considered expanding their lending activities. We found that most of them were looking for guidance – practical, legal, etc., on how to become a lender. Thoughtful questions were asked, including how becoming a lender to their franchisees might impact the qualitative nature of their franchise relationships. The speakers at the workshop generously shared their perspectives – that of franchisors (Ken Switzer of Marco’s Pizza, Scott Frith of Lawn Doctor) and that of bankers (Reggie Heard of Bankers One Capital).
Franchisees Keeping their Minds Open
During informal networking talks, at the IFA Convention, many franchise executives were talking about keeping their minds open to different ways of solving problems…particularly in today’s environment. This is particularly true when it comes to their top challenge: franchisee financing. The continual lack of bank loans nationwide has, in true Darwinian fashion, driven franchisors to consider other adaptive strategies, such as “becoming the bank” for their franchisees.
So, we at Franchise Note Buyers recognize that while banks will continue to play the lead role in the financing of franchise businesses, many franchisors are starting to lend directly to franchisees. And because franchisors are not banks and therefore may not wish to hold these notes long after the franchise was sold via franchisor-funding, our company stands ready to purchase these notes. Our method allows franchisors to extract top-dollar cash from their franchisee loans and leave behind the risk of default associated with note holding.
We are happy to join forces with those flexible, agile and nimble franchisors who are looking for innovative solutions to their urgent problems. And this got me to thinking about how the wider business world is looking at the fascinating topic of innovation – especially during these challenging economic times.
Clayton M. Christensen is the author of best-selling books, “The Innovator’s Dilemma” and “The Innovator’s Solution.” He coined the term “disruptive innovation” – which refers to a new product or service that disrupts an existing market, in ways that the market competitors do not expect.
A July 2010 article written in the Harvard Business Review was titled “How Reframers Unleash Innovation in Their Companies (and Beyond)”. The authors, Navi Radjou, Jaideep Prabhu, Prasad Kaipa and Simone Ahuja write about a quiet revolution led across multiple industries. He gives examples of leaders who “conjure up disruptive business model innovations that could rewrite the rules of the game in your industry. We call them Reframers.” The author explains that that these Reframers – including CEO’s of some of the nation’s leading companies – “dare to question well-ingrained business truisms and industry paradigms.” In other words, these Reframers dare to offer new solutions that challenge conventional wisdom in ways that are sometimes simpler and easier.
For example, the author cites Ratan Tata, Chairman of Tata Group, who created an affordable car called the Nano. In doing so, he challenged the century-old presumption that cars must be completely produced in the car company’s own factories. Tata Motors will distribute component kits that entrepreneurial small businesses can assemble closer to customers. By questioning this key underlying premise, Tata Motors and the Nano has forced car makers worldwide to re-examine their own internal conventional wisdom to see how they can design a budget car that can compete with the Nano.
In our own little way, we at Franchise Note Buyers seek to become Reframers and Disruptive Innovators in the big world of franchisee finance. But with a twist. Rather than challenging traditional bank financing, we instead challenge franchisors and franchisees to open their minds to alternative ways deals can get done–without bank financing…at least for a portion of their transactions.
This blog may report on many things in the future, but one topic we will return to is this topic of Disruptive Innovation. Here’s to the Reframers!
"Franchise Note Buyers is the perfect tool at the perfect time for the franchise resales market." Nancy Estep-Critchett, President, Franchise ReSales LLC
"…[T]his innovative service may be one of the most effective tools today for bringing buyers and sellers together to get their deal done." Tom West, Founder, Business Brokerage Press
