Franchise Finance Expert Offers Advice on Borrowing
Bank deals are still possible for restaurant operators and franchisees, but lenders' demands have increased.
By David Farkas, Senior Editor -- Chain Leader, 5/19/2009 3:38:00 PM
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| "We must get banks lending again," says Bernie Siegel, founder and chairman of Siegel Financial Group and NRA Show panelist. |
One might have thought so from a sparsely attended panel discussion, "Financing Your Restaurant Growth in a Tight Credit Market," at this week's National Restaurant Association Restaurant Hotel-Motel Show in Chicago.
Merely two dozen people showed up. Maybe others spotted the word "tight" and figured, what could I possibly gain?
Plenty if had they taken a seat and listened to suggestions from panel member Bernie Siegel, founder and chairman of Siegel Financial Group, Bala Cynwyd, Pa.
Done Deal
Siegel, a former Dunkin' Donuts franchisee, talked mainly about franchise finance. "Good deals are getting done; few, but they are getting done," he said, adding that rates are about 7.5 percent for seven-and-a-half years.
Plenty of lenders have exited the restaurant space or are reluctant to make loans to new franchisees: Wells Fargo, PNC, Comerica and CIT Small Business Lending, among them, Siegel said.
But new lenders may soon enter the market given the Small Business Administration's recently announced 90 percent loan guarantee. Meanwhile, Siegel suggests borrowing from regional banks.
"The first place I'd go is these little [banks] with three branches," he advised. Make sure, however, you can prove you're a good operator with a strong concept and a good credit history. Be prepared to put down at least 25 percent of the loan's total.
Make the Claim
Proving you're franchising a strong concept may depend on whether the franchisor has included a Section 19, which provides earnings data, in its Franchise Disclosure Document. Few do, Siegel said.
"It's easier to get the attention of lenders when franchisors make earnings claims," he claimed. At the very least, this information should offer average unit volumes and food and labor costs.
Siegel also suggested franchisees and franchisors should read the FDD as if they were bankers deciding whether to make a loan. Franchisors should also "examine your FDD and take out all the negatives, working with counsel to make language changes so the document reads better to lenders," he said.
"Extreme measures are necessary in this market to get lending going," Siegel added.
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