How Lenders Work With Franchisors

Financing franchise investors has become big business in recent years. As the economy continues to recover, years after the height of the Great Recession, loans for small businesses have become safer bets, particularly those backing franchise brands, which offer proven business models and existing portfolios.

Because franchise brands require significantly less vetting than most new-business ventures, most lenders focus the majority of their efforts on the franchisee, vetting their expertise, financial wherewithal, business plans and projections. But savvy lenders have found a number of distinct advantages in working closely with franchisors. We talked to five franchise lenders to learn how working with franchisors helps them finance franchisees. Here’s what they had to say.

Richard Riecker, Senior Vice President of Bridge Funding Group at BankUnited:

[Working with franchisors] gives us a better understanding of how the brand is operating and allows us to get a heads-up about initiatives the brand may have coming up, like new growth markets, remodels, and other plans that present opportunities or retire financing for franchisees.

We attend most of the conferences for the brands we work with. We also make trips to franchisor headquarters. Most franchisors will have Lenders Days, where they bring all the lenders in and talk abbot the business and its financial strength, so that’s always a good opportunity for us to get to know the brand and get ahead of any future initiatives and opportunities.

James Short, Director of Food Franchise Finance for BBVA Compass:

We finance and bank a number of franchisors. We also finance independent branded concepts and owner-operators. It really varies. We work with independent branded concepts that may have 75 or 100 units, but we also work with a large corporate chain that has far more, so we really work up and down the spectrum.

Kevin Burke, Founder and CEO of Trinity Capital:

Trinity has worked for some of the leading franchisors over the years, which we believe has provided us with meaningful relationships and industry insight. We also have the nation's leading practice in Franchisee Association representation.

Mike Rozman, Co-Founder and CEO of BoeFly:

A lot of franchisors will use BoeFly to help qualify franchise applicants. We do diligence on applicants on behalf of the brand. We do full criminal background checks, credit checks and every other piece of vetting. That includes a financial pre-qualification. So not only are we establishing the applicant’s financial wherewithal for the brand, we are also delivering a financing proposal right back to the franchisee.

Craig T. Weichmann, Vice President of Pinnacle Commercial Capital:

Everyone on our team specializes in something. Some of our people specialize in certain brands, so they will work with franchisors. We have a guy who specializes in Burger King, so he has deep contacts in that world. He goes to their annual convention. He can catch up with clients there, but it’s also an opportunity to get intelligence from the corporate team. We’ve got someone else who does the same thing with Pizza Hut, so it’s sort of a divide-and-conquer strategy.

We also go to emerging franchise conferences to look for brands that aren’t tier-one but may be worth learning more about — up-and-comers with positive things happening at the franchisor level and are attracting the right kind of franchisees.