From the Arizona desert, a relatively new financing firm is helping franchisees get through the vital startup stage in their new businesses.
Sprout Financial, headquartered in Phoenix, is an alternative lending company that helps individuals procure financing in the form of unsecured lines of credit for a variety of business opportunities.
Essentially, the firm helps franchisees bridge any gaps they may have between the time their Small Business Administration (SBA) loan is used up and when their business starts making returns for them.
“Specifically in the franchise space, we’re really a gap financing firm that is able to provide people with capital if they’ve used their SBA loan but they still need additional capital for equipment financing or leasing or if they need working capital once they open their franchise,” Jordan Washington, Sprout’s Director of Operations, said during a recent interview from the firm’s Phoenix headquarters.
Although Sprout has only been in business for about 16 months, its parent company, Micamp Solutions LLC, a payment technology firm, has been in business since 2007.
“While we haven’t been in business for long, we have all the resources in place and we’re a full-service, in-house shop,” Washington noted.
Picking up where the banks leave off
Many banks will refuse to lend to people who are new in business or who don’t have access to the necessary collateral to get a loan, the director of operations said. This reluctance from the banks creates a need for services like Sprout.
If someone is opening a franchise, that person might have good personal financial standing, but if the franchise is their first real business venture, their bank won’t loan to them because they haven’t been operating the business for long, she explained.
But Sprout Financial uses a franchisee’s personal credit history to establish financing for them to use for their new business venture, Washington said, which allows them to use their good personal credit to establish the working capital they need.
They can use this gap financing to get the equipment they need and have the working capital they require to start their business.
As an example, Washington said, if a franchisee purchases a franchise for $100,000, the franchisor will likely help them establish an equipment lease and help them get an SBA loan. However, even with all this help from the franchisor, franchisees will often not have the necessary capital to get the business up and running for that crucial first year as the business finds its legs.
“A lot of times, the franchisee won’t have the working capital they need to run the business for six months or eight months or whatever time they need to get started,” Washington said. “And that’s where we come in and provide the opportunity for them to get unsecured lines of credit in an alternative financing way so they can get that working capital for their business.”
Washington said Sprout works with at least 20 or 30 different franchises directly, but also receives a lot of referrals from franchise brokers
What makes Sprout different from other financing companies is the level of service the firm is able to provide, the director of operations said.
“We have a full team of employees and operational staff that services the client from the very beginning to the very end, providing consultation throughout the process,” she explained. “Not only that, but after we provide them with the financing they require, we continue to provide them with consultation as needed. If they call us with questions, if they call us needing advice, we are always open to that.”
When a franchise broker sends over a client, they initially talk to an account manager at Sprout. The account manager explains the process and gets the process started simply by pulling up a client’s personal credit report. Then, the client goes to the processing team, which manages all the financing options that are available to the franchisee. The processing team helps the client to get established in Sprout’s system.
“I think a big difference between Sprout Financial and other lending companies is that Sprout Financial does everything internally and manages the entire process and doesn’t bring in anyone else to do fulfillment,” Washington said.
Sprout values its partners as an extension of its own business and services them accordingly, she added.
For franchisees who need to fill in any gaps in their financing, Sprout Financial offers a viable alternative to reluctant banks.