What it Takes to Get a Debt Deal Done in 2016

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Whether you are a fellow lender or you’re a restaurant franchisee, you understand that challenges often arise in business, especially when the need for capital is involved.

As a franchisee, you want to find a lending partner that will help you overcome those capital challenges. And as a lender, you don’t want to be the one to say no. So you work together to a find a solution.

At the recent Restaurant Finance & Development Conference held November 9-11 in Las Vegas, seven lending representatives met in a panel-like forum to discuss deals they did in the last year, the challenges they faced, and how they were able to help their customers.

The panelists present were from lenders in the industry, including Direct Capital’s Senior Vice President of Risk, Eric Renaud. (See our Facebook page for a 2-minute video of his discussion!)

The challenges each lender presented involved things from unexpected lending opportunities to understanding the differences between small, private company concerns and larger, better-known ones.

Renaud represented Direct Capital with a case study on overcoming a challenge involving one of our 90-unit franchisees with 90 different operating entities and diverse ownership.  Today, we want to share this story with you because, like the audience members at RFDC, we believe it provides great insights for your business (and franchise) moving forward.

The three brothers, Renaud explained, have really grown their system in the last seven years and have chosen to operate the business by always opening new stores and creating new entities for those stores.

“When someone is growing like that and producing new entities,” Renaud said, “they’re doing it for a couple of reasons: There are tax implications. And it’s easier to sell a store if it’s under a different entity.”

However, from a lending standpoint this presents a challenge. “It’s very difficult to assess 90 different sets of financials without a consolidated financial statement. In addition, having multiple entities is difficult for the franchise to manage and it can also be a disadvantage when succession planning,” he said.

But since the brothers were looking to Direct Capital to help build three more stores for a total of $1M, Renaud and the rest of the team wanted to find a way to make the deal work. So how did they do it?

Renaud explained, “We said, ‘How do we assess 90 financial packages? And how will we do that and take a supporting position in the business?’”

There were three things Direct Capital needed to feel comfortable pushing this deal through. Renaud said, “The franchisee was very willing put equity into the deal – about 30-40% into the new store builds. We also said we needed Personal Guarantees from the three main brothers because that will help smooth out these diverse ownership structures across the units.”

Finally, he said, they wanted to review at least 40 sets of financials to the individual stores so they can understand how the stores were performing across the units. “On the stores they wanted to build, we wanted to make sure that performance would equal the stores they already had.”

In the end, Renaud said, “We were able to approve and provide the financing very quickly. They got the three stores in the time frame they were looking for, which helped provide 80 new jobs for the local economy and the market.”

At Direct Capital, we pride ourselves on fast, easy financing, but also on the relationships we form with franchisees like these brothers. We always work hard to find solutions to all our customers’ financing needs, and this deal was no exception.

To learn more about our franchise financing, visit our website or call our team of experts today at 866-777-0117!