In 2020, banks had to contend with general new underwriting guidance in SOPs, COVID-19 specific underwriting guidance, and the rules about the Paycheck Protection Program (“PPP”). All of these circumstances impacted the availability of funding for franchisors and franchisees. Despite the uncertainties about the economy and trend towards more conservative lending, the good news is that banks are still issuing useful loans. In this webinar, Geoff and Sherri Seiber, the CEO and COO of FranFund, the leading full service franchise funding solution, discuss Small Business Administration (SBA) loan options for franchisees, analyze changes in the lending environment in 2020, and provide advice to franchisors about building their financial toolkits.

The SBA loans most frequently utilized by franchisees are the SBA 7A standard loan (for amounts more than $350,000) and the SBA 7A small loans (for amounts less than $350,000). The SBA also offers special working capital loans that are particularly beneficial to businesses. In the webinar, Geoff and Sherri outline the more specific eligibility requirements and considerations for these SBA loan products. By understanding these programs, franchisors can be a resource for prospective franchisees, which in turn helps the franchise system to grow and new units to open more rapidly.

Some of the important takeaways from the discussion of these loans include:

  • The importance of post-closing liquidity;
  • Unique changes in the working capital loan requirements;
  • The pros and cons of the Rollovers for Business Start-Ups (ROBS) option, which can be used as an alternative to a loan or to generate extra liquidity to qualify for a loan; and
  • The importance of gaining meaningful pre-approval (which often requires more than a local bank’s review).

Another critical takeaway for franchisors is that a successful financial toolkit includes strong relationships with not only accountants and lawyers, but also bankers. Franchisors (and by extension their franchisees) who had strong working relationships with a bank had an advantage in the pandemic lending environment and will continue to do so. Knowing the bank and interacting with trusted bankers helps franchisors meet their goals and needs.