7 must-haves for restaurant franchisees seeking financing

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© 2016 CIT Group Inc. CIT and the CIT logo are registered service marks of CIT Group Inc. 7 Must-Haves for Restaurant Franchisees Seeking Financing For more articles like this, visit: cit.com/industry-insights Everyone loves restaurants but not everyone has an appetite for financing. Here are seven steps you can take to securing the right financing with a committed partner: The Right Stuff Your lender is going to have lots of questions so be prepared. While new product launches and the latest marketing campaign are interesting, Lenders are going to get granular on your particular business: 3-yr comparative P&L’s on all units, EBITDA adjustments, capex requirements, sources & uses, and operating history are all standard opening requests. Understanding the Brand Lenders underwrite your particular stores but only in the context of overall brand performance. Being a star franchisee in a weak system can be lonely. In particular the lender will concentrate on the concept’s overall performance in terms of Same Store Sales, Average Unit Volume, attrition rates, and brand elasticity in the face of change. Is the concept performing above or below industry averages? Is the P&L insulated or susceptible to material input or COGS changes, and how has your performance over the past three years stacked up against these benchmarks? Information Flow You may not be the best person to provide the lender with everything they need. That’s fine, so delegate accordingly and don’t try to be a superhero. Lenders typically deal with several contacts on the borrower’s side to get the deal done including- controller, CFO, or accountant; lawyers; even the franchisor to collect data. Choose Lease and Franchise Agreements that Make Sense Remember, paying above-market rents leaves less capital to make debt payments. Some considerations are: Remaining lease and franchise agreement terms and option periods. What is the rent cost as a % of the total sales and does the borrower own or rent the location? What is the rent factor and appropriate cap rate if the borrower is looking for real property financing? Where is the real estate held, and what is the tax strategy? Business Profile and Ownership Lenders will consider the purpose of the financing and whether or not you are positioned for further growth. Your long and short term objectives as well as your personal financial stake in the business will all be factors. Be honest about your intentions to operate the business going forward, your lender should represent an ally regarding succession planning and any acquisition or divestiture strategy. Timing Be up front and direct about when you need the financing and why. Ask the lender to provide an indication of their timeline, key process steps, contact points, and deliverables. The X-Factor Is there a critical factor that has not been addressed in the initial discussions such as an expiring lease, a partnership buyout, major renovation requirement? Your lender can work around the vast majority of issues you face, but surprises can derail the process and can compromise both timelines and approval conditions. Helping a lender to understand your business inside and out can help them to guide you in selecting the most appropriate finance products and structures to maximize your performance. A franchisee who requires financing should consider carefully not just the terms of a first transaction with a lender, but whether that lender is invested in their future.

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© 2016 CIT Group Inc. CIT and the CIT logo are registered service marks of CIT Group Inc.

7 Must-Haves for Restaurant Franchisees Seeking Financing

For more articles like this, visit:

cit.com/industry-insights

Everyone loves restaurants but not everyone has an appetite for fi nancing. Here are seven steps you can take to securing the right fi nancing with a committed partner:

The Right StuffYour lender is going to have lots of questions so be prepared. While new product launches and the latest marketing campaign are interesting, Lenders are going to get granular on your particular business: 3-yr comparative P&L’s on all units, EBITDA adjustments, capex requirements, sources & uses, and operating history are all standard opening requests.

Understanding the BrandLenders underwrite your particular stores but only in the context of overall brand performance. Being a star franchisee in a weak system can be lonely. In particular the lender will concentrate on the concept’s overall performance in terms of Same Store Sales, Average Unit Volume, attrition rates, and brand elasticity in the face of change. Is the concept performing above or below industry averages? Is the P&L insulated or susceptible to material input or COGS changes, and how has your performance over the past three years stacked up against these benchmarks?

Information Flow You may not be the best person to provide the lender with everything they need. That’s fi ne, so delegate accordingly and don’t try to be a superhero. Lenders typically deal with several contacts on the borrower’s side to get the deal done including- controller, CFO, or accountant; lawyers; even the franchisor to collect data.

Choose Lease and Franchise Agreements that Make Sense Remember, paying above-market rents leaves less capital to make debt payments. Some considerations are: Remaining lease and franchise agreement terms and option periods. What is the rent cost as a % of the total sales and does the borrower own or rent the location?What is the rent factor and appropriate cap rate if the borrower is looking for real property fi nancing? Where is the real estate held, and what is the tax strategy?

Business Profi le and OwnershipLenders will consider the purpose of the fi nancing and whether or not you are positioned for further growth. Your long and short term objectives as well as your personal fi nancial stake in the business will all be factors. Be honest about your intentions to operate the business going forward, your lender should represent an ally regarding succession planning and any acquisition or divestiture strategy.

TimingBe up front and direct about when you need the fi nancing and why. Ask the lender to provide an indication of their timeline, key process steps, contact points, and deliverables.

The X-Factor Is there a critical factor that has not been addressed in the initial discussions such as an expiring lease, a partnership buyout, major renovation requirement? Your lender can work around the vast majority of issues you face, but surprises can derail the process and can compromise both timelines and approval conditions.

Helping a lender to understand your business inside and out can help them to guide you in selecting the most appropriate fi nance products and structures to maximize your performance. A franchisee who requires fi nancing should consider carefully not just the terms of a fi rst transaction with a lender, but whether that lender is invested in their future.