Capital Matters

Massachusetts: SBA/Bailout Microcosm?

A Nov. 2 article in The Boston Globe puts numbers on what everyone in franchising and already knows: large national banks that received billions in bailout funds are not making SBA 7(a) loans to small businesses. Bank of America (more than $45 billion in bailout funds) reportedly made only eleven 7(a) loans in Massachusetts in the year (totaling $240,500) ending in September - down from 54 loans totaling $1.6 million the year before. While some smaller banks that received taxpayer funds were tarred with the same brush, the article also noted that "Some of the state's smallest - and most stable - banks have been filling part of the lending void."
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Franchising Gains in 3Q

The UNH Rosenberg Center Franchise 50 Index climbed 9.3 percent in the third quarter. This marked the second consecutive quarterly increase since the index began declining in 4Q 2007. The 50 franchisors in the index represent more than 98 percent of the market capitalization of all U.S. public companies engaged in business format franchising. Thirty eight of the 50 brands in the index gained in the quarter. All lodging firms in the index improved strongly, with Starwood Hotels & Resorts Worldwide gaining close to 49 percent. Most of the firms that lost market value were in the business.
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Good News for Small Biz?

"I recently stumbled across some information that helps me believe justice and fairness still exist," wrote G. Jeffrey Aaron, a business writer for the Star-Gazette newspaper in Elmira, N.Y. The column discusses SBA 7(a) and 504 loans, CEO pay cuts, the bailout, big banks, community banks, and the prospects of lending for small businesses (Oct. 24).
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Snap-On Financing

If your candidates can't find funding from traditional sources, provide it yourself. That's what Snap-on Tools began doing for qualified candidates more than 10 years ago, through Snap-on Credit. Now many other franchisors are catching on to in-house financing as a vehicle for growth - in a year the FDIC reported that bank lending fell by about $15 billion in just the first six months. Mike Doweidt, director of franchising at the 90-year-old brand, says the Snap-on will consider financing for candidates who have a good credit score, make a down payment, and pass a profile test - bypassing the need to go to a bank with an in-depth business plan.
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Edible Arrangements Goes "Direct"

To help fund its continuing expansion, Edible Arrangements has selected Direct Capital Corp. (DCC) as its exclusive preferred finance company. Funding through DCC will be used for single and development of new stores, store remodels, and equipment purchases. Candidates and franchisees who do not meet the underwriting criteria of the DCC program can turn to Farid Capital Corp., a secondary source set up by Edible Arrangement founders Tariq and Kamran Farid. "During a recession it's crucial for franchisees to have access to capital to grow," said Tariq Farid. "The combination of this partnership and the launch of Farid Capital Corporation are key ingredients to developing the brand across the globe." Founded in 1999 in East Haven, Conn., Edible Arrangements has 929 locations and is targeting 1,000 units by 2010.

Direct Capital Targets Franchising

In addition to its deal with Edible Arrangements, Direct Capital Corp. (DCC) announced in May that it had partnered with the National Franchisee Association (NFA), an association of Burger King franchisees, to create Lending Solutions+, a program to give association members access to competitive financing options for equipment upgrades, including broiler and POS upgrades.

In October, Portsmouth, N.H.-based DCC announced it had close a new three-year $50 million equipment lease-backed bank facility with the Lender Finance division of Wells Fargo Foothill, part of Wells Fargo & Company. This followed DCC's expansion of its franchise lending unit after securing $100 million from Key National Finance and other conduits and banks in April, and renewing an additional $100 million line from DZ Bank.
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GE Capital Lends $34.35 Million

GE Capital, Franchise Finance has announced two deals: $25 million to Mellow Mushroom franchisor Home-Grown Industries of Georgia (HGI); and $9.35 million to Legacy Restaurants Group, LLC, owners of Wendy's franchise units in Kansas and Missouri.

The Mellow Mushroom deal consisted of a five-year senior term of $21 million and a $4 million revolving credit facility. The funds were used to complete a partner buyout, refinance the company's existing senior debt, and provide additional funds for new unit growth. HGI, based in Atlanta, has 3 corporate and more than 100 franchised Mellow Mushroom restaurants.

The loan to multi-unit Wendy's franchisee Legacy Restaurants Group was used to help acquire five Wendy's from another franchisee in Joplin, Mo. and to refinance existing debt. Legacy now owns and operates 17 Wendy's franchise units in the Topeka, Kan. and Kansas City, Mo. areas.

Wells Fargo Likes Big Macs...

Wells Fargo Restaurant Finance announced it has closed more than $30 million in loans to McDonald's franchisees under a program with the franchisor announced in April. The program covers fixed and floating rate loans for restaurant acquisitions, rebuilds, relocations, equipment purchases, and improvements, as well as wealth management and treasury management services.

... and Iceland Bids Them Adieu

We couldn't close this month's Capital Matters without noting the departure of McDonald's from Iceland, as of Oct. 31. Iceland's banking collapse in October 2008 and the fall of the krona, along with the high cost of importing led to the corporate decision to close the country's only three McDonald's restaurants - which went out with a bang. Jon Ogmundsson, operator of all three, said lines were out the door following the announcement, that he had been selling about 10,000 burgers daily (a huge increase), and that he ran out of Big Macs for several hours as the final days wound down. "Sales have not just gone up," he said in the local media. "It's gone turbo." After taking down the golden arches, Ogmundsson plans to continue running the restaurants under a different name. McDonald's said it had no plans to return to Iceland.

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