One Florida-based company is rewriting how franchisors finance their locations through a combination of equipment leasing and government loans.
Starting out by financing fitness gyms over a decade ago, Business Finance Depot has since expanded its services to franchises and currently works with United Franchise Group’s stable of brands, and others.
Paul Bosley, the Managing Member, said the packaging of equipment leases and Small Business Administration (SBA) Express loans is a is a new approach to franchise financing.
“We are basically combining 2 financing products that have been out there for a long time and introducing them to the franchise industry for the first time.”
Changing the game
Prior to Business Finance Depot arriving on the franchising scene, there were three main ways for franchisees to procure funding for their new businesses, Bosley explained during a recent interview from the company’s headquarters in Mount Dora, FL.
- SBA 7(a) loans, which are for any amount from $250,000 up to $5,000,000. The franchisee would have to use the real estate they own as collateral.
- Rollover as Business Startups (ROBS), a program from the Internal Revenue Service, which allows entrepreneurs to dip into their retirement savings to fund a new business without the withdrawals being taxed as income or penalized for early withdrawals.
- A credit card offer from some finance companies that would provide five credit cards each with a $20,000 limit to franchisees with good credit. The franchisees would be charged no interest for one year and then be charged standard credit card interest rates after that.
With such limited and unsavory options available for franchisees, it was relatively easy for Bosley and Business Finance Depot to come along and change franchise financing.
Business Finance Depot offers franchisees an SBA Working Capital Loan, plus an equipment lease for all the equipment necessary to run their franchise.
The beauty of the Working Capital Loan is that the business itself is the collateral, so franchisees don’t have to use their real estate as collateral and they don’t have to use money from their retirement savings. The collateral for the equipment lease is the equipment.
The Working Capital Loan has a 10-year window to repay with an interest rate including all fees of 7% and no early payment penalty, meaning franchisees can pay it off ahead of time if they have the means to.
The equipment lease usually requires a 10 – 20 percent down payment, Bosley explained, with the rest of the lease being financed over three years. The franchisee then owns all the equipment at the end of the lease period.
By combining these two financial products, Business Finance Depot is able to give franchisees about $250,000 worth of equipment and operating capital at about a 10% blended interest rate and no early payment penalties, Bosley said.
Settling the SCORE
Bosley found his way into the franchising industry almost by accident. After serving as the Leasing Manager for Keiser Corporation and Promaxima Manufacturing for over a decade, Bosley decided to become a volunteer for the SCORE, a division of the Small Business Administration of the federal government, which offers free business consulting to entrepreneurs.
Through his volunteer service with SCORE, Bosley met many SBA lenders. One of those lenders contacted him and asked if he’d be interested in packaging SBA loans for new entrepreneurs and he agreed.
Shortly after, a representative from United Franchise Group contacted him about packaging the loans and leases for its stable of brands and now Business Finance Depot is working with multiple franchisors to get their locations up and running and put their franchisees on the road to success faster and easier than before.
“Our niche is to look at a franchise, figure out what equipment they need, and package that equipment into a lease and then combine that with a working capital loan for $150,000,” Bosley said.
In addition to the franchises owned by the United Franchise Group; which includes names like Experimac, John Smith Subs, Signarama and SuperGreen Solutions; Bosley has also started working with Leisure Systems Inc., which owns the Yogi Bear’s Jellystone Park franchise.
What many people don’t realize is that much of the equipment they see on a daily basis isn’t actually owned by a company, but rather it’s leased by a company.
From airplanes to heavy equipment to computers, software, ovens and even the counters people see when they walk into a business, much of that equipment is probably being leased.
“All that equipment can be put into a lease package,” Bosley said. “Leasing is actually a big business. There are a lot of companies that exist that do nothing else but leasing.”
Franchising offers some lucrative opportunities for leasing companies. For example, in the Yogi Bear’s Jellystone Park franchises, the parks have small cabins families can rent on a nightly basis. Those cabins are actually delivered on trailers, which makes them titled vehicles, which makes them perfect for leasing.
The Yogi Bear’s Jellystone Park company is thrilled that they can offer their franchisees a leasing package for the cabins, which are manufactured by Cavco, Bosley said.
For franchisors who are looking to give their franchisees the best possible chance at success, game changing financing like that offered by Business Finance Depot is a welcome addition to their finance options.