2020 was a tough year economically. It could be a natural conclusion that there is no funding available for people who want to start a business in 2021. I want to debunk that myth because there IS funding available. As the franchise consultant, I am NOT the lending expert. I am the resource guiding my candidates TO the expert. I have set up a great conversation with two of America’s top funding organizations, Shirley Kefgen of FranFund and Eric Schecterman of Benetrends, specializing in franchise lending, to talk about the available opportunities in 2021 if you have the dream to start a franchise business. We will talk about lending during the pandemic and into 2021. What is that like? How has lending changed? HAS it changed? Is there money available with all the PPP money we saw the government putting out there? Did that change lending for small businesses? We’ll talk about the lending landscape and things they’ve seen changing and happening since COVID hit.
There is money out there. There are banks out there that are excited to lend money to new businesses. Luckily, rumors about banks not wanting to lend are not true. Banks are excited about moving forward with startups. There are all sorts of loan programs for smaller service-based businesses, like brick-and-mortar restaurants, gyms, salons, and more traditional business models.
There are several tools you can utilize, but you have to learn about them. The SBA world of today is more like every other year I’ve ever seen in funding. Banks are looking for good businesses with good buyers. When they see that there are several ways to access capital, I feel like sometimes the perception has been “smaller is better,” and I would almost say it’s the opposite here in 2021. Bigger is better when you’re thinking about the banks. The larger loans, the larger projects, the larger build-outs—that does not scare them. If anything, it entices them more.
You should not expect loans to move quickly today. Part of the reason that you see processing times maybe take a while longer than we might like with banks is that they are dual-focused now. That will shift these PPP applications; they’re going to expire at some point. It’s taking a long time because there are a ton of applications out there. Earlier is always better. The earlier that you can get engaged, and knowing what all of your tools are, can change what you’re looking for. If you are pursuing a loan, people think that they can’t start working on the loan packaging items until they’ve bought or picked the business.
Many people question touching their 401(k) and their lending-worthiness. The 401(k) rollover or the “Rollover for Business Startup” (ROBS) program allows folks to access money that they might have in a 401(k) from an old job, or maybe an IRA that they’ve rolled into, or a 403(b) if they work for a nonprofit. They can invest that money right into the stock of their own business without paying income taxes or early withdrawal penalties because it’s not money that’s going in your pocket that would be viewed as income. It’s a strategy that you can use to start a business without creating any debt. It is a strategy that you could combine with a borrowing option to develop the total amount of capital that would be necessary.
To be lending-worthy is to have liquidity. Banks will overlook other areas of worthiness gaps when there’s stronger liquidity that’s there. The biggest challenge that we’ve seen with lending today or qualifications with borrowers is something referred to as “Post-Closing Liquidity.” That’s not always what the bank’s the most concerned about. What they’re more concerned about is who’s paying his mortgage next month? Who’s paying his bills for the next two to three months? More important to them, who’s paying their loan? Who’s paying the bank loan while this business is being built?
I am so happy to let my friends Eric and Shirley share their knowledge and expertise to inspire you to remain open-minded, be willing to ask the questions, and see what the answers are.
I hope you enjoyed my insightful conversation about franchise lending. If you have any questions about selecting the right business and/or funding a franchise business, you can connect with Eric and Shirley using the contact info below. And as always, leave me a comment below or contact me by e-mail today.
FranFund site: https://www.franfund.com/shirley-kefgen
Benetrends site: https://www.benetrends.com/25-employees/371-eschechterman