2017 Issue 1 | GearedUp
Financing Continued from page 35
each prospective lender to walk you through the entire process, including what documents and information you will be required to produce along the way.
• Collateral: Some types of loans, like Small Business Association( SBA) loans, will seek to place a second lien on your house or to pledge your marketable securities or other assets as collateral for the loan. You should carefully consider such provisions.
“ In today’ s markets, most terms are negotiable. Borrowers will do best if they speak to several lenders at the same time,” said Fagan.“ Every lender has their own information request list. Fortunately, you’ ll find that these lists are very similar to one another.”
Fagan notes that it helps to have all the documents in one place, and he personally uses a Dropbox folder to organize common items such as tax returns, biographies and org charts.
Small Business Administration Loans For those just starting out, an SBA loan can be the key to making your tenure as a franchisee a long and prosperous one.
“ I’ ve used the SBA program in the past, which is very good for people who are just getting up and running,” said Glassman’ s business partner, John Clancy.“ Without SBA [ loans ], I wouldn’ t have been able to execute the way I did beyond my first two ground-up clubs. The SBA program is very helpful.”
Clancy isn’ t the only one preaching the power and perks of SBA loans, however. Franchisee CJ Bouchard with PF Eastern NC
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“ In today’ s markets, most terms are negotiable. Borrowers will do best if they speak to several lenders at the same time.”
— Kevin Fagan
CCMO PF Management, LLC franchisee
has also utilized and relied on SBA loans but notes that they aren’ t all created equal.
“ There are two different programs you can look at, the 504 and the 7A. You don’ t want to look at the 7A,” said Bouchard.“ It’ s not programed for us as Planet Fitness ® owners.”
The 7A program is essentially a bank loan with an insurance policy and favors the lender. Commercial banks process these loans in-house, and the 7A program totes more fees than the 504 program. Bouchard views these financing deals as a last resort. The 504, on the other hand, is a much better solution.“ There’ s multiple advantages of an SBA loan,” said Bouchard.“ The 504 is a much better program that allows you to lock in a rate for a longer period of time, and you’ re able to amortize the entire project over a longer period of time, as well.”
The No. 1 advantage of the 504 loans are that they generally require a lower down payment of 10 percent, whereas conventional banks usually require double that. These loans also include a 20-year fixed rate and can include soft costs, which allows for a complete build-to-suit.
“ Another aspect of the SBA is that you’ re generally allocated up to $ 5 million per individual group, and of that money, SBA guarantees 50 percent,” added Bouchard.“ The bank that you deal with guarantees 40 percent. You, as the individual, are putting up the remaining 10 percent.”
You can use this extra capital to leverage multiple deals through SBA as a result. A word of advice, however, is that SBA is going to want to look at all your paperwork and franchise agreements, so make sure to have all franchise agreements and leases signed and executed in electronic form.
Clancy notes that, as you build your business, most franchisees have a credit facility to pull from, but SBA loans were still instrumental in the early years.
“ My first ground-up was done with an SBA loan, and it’ s really good leverage because you only have to put 10 percent down,” said Clancy.“ Although the terms may not be as good as the institutional kind of stability that I have now, it got the job done.”
Regardless of which route you take, thorough consideration is paramount in selecting a financial lender. Researching your funding options can save you money in the long term as financing is not a one-size-fits-all choice.“ Every situation is unique, so there are no 100 percent right or wrong answers,” concluded Fagan. G
Christina Cannon is the PFIFA communications manager and associate editor of Geared Up. You can contact Cannon at 678-797-5160 or christinac @ pffranchisee. org.
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