May 06, 2024

SBA Loans for Your Franchise - With Edith Wiseman

50 minutes

DESCRIPTION:

Edith Wiseman, the president of FRANdata, discusses the changes in the franchising industry, particularly in relation to SBA loans. She explains that the SBA has changed its standard operating procedure, eliminating the need for lenders to worry about affiliation between the franchisor and franchisee. However, this has led to the SBA no longer determining whether a franchise is eligible for an SBA loan, a task that now falls to the lender. This can be problematic for certain business models, such as passive businesses, which may not be eligible for SBA loans.

Some lenders still consider affiliation a credit issue, despite the SBA's stance, and may refuse to lend to new franchises. To address this, FRANdata has developed a certification of franchise eligibility for SBA lending, which has been signed by nearly 250 franchisors. This certification allows franchisors to self-certify that they abide by all eligibility rules, simplifying the lending process.

Wiseman also discusses the number of active franchise systems, estimating that there are between 3750 to 4000 active franchise brands. She confirms that a new franchise brand appears on the scene every day, but notes that the demand for SBA loans is greatest from brands that are slightly past the emerging stage.

For emerging companies that may face resistance from lenders, Wiseman recommends joining the Franchise Registry and using FRANdata's certification to demonstrate their eligibility for SBA loans. She also advises understanding the landscape of SBA lenders and finding a financing partner that is best suited for their franchise system.

Wiseman concludes by discussing some of the eligibility criteria for SBA loans, such as the franchisor not controlling the money flow of the franchisee. She notes that while this is a credit concern for some lenders, there are ways around this issue, such as the franchisor signing an addendum that allows the lender to take a security interest in the accounts receivables.

- With Edith Wiseman

TIMESTAMPS:

● 00:00: Interview Introduction

● 00:56: Discussion on SBA Regulation Changes

● 04:08: Affiliation Concerns for Lenders

● 07:30: Introduction of Franchise Registry's Certification

● 10:30: Impact on Emerging Franchise Brands

● 12:35: Assistance for Emerging Franchise Companies

● 15:17: Clarification on Affiliation and Credit Issues

● 17:45: Other Eligibility Criteria

● 19:25: Challenges for Franchisors

● 21:00: Example of a Unique Business Financed