July 15th, 2013
Future Looks Bright for Franchise Financing
Michael Brown is AlphaGraphics’ development director for acquisitions, real estate and financing – the guy who helps get the deal done for franchisees. As such, he has unique perspective on the current economic client for entrepreneurs. And he sees good signs on the horizon.
“It used to be that you could just about walk into any bank with a decent FICO score and a reasonable net worth and get whatever you wanted without a problem,” Brown says. “The Recession changed all that. Today, there are no guarantees, but it appears that we are headed into a period where it will be easier to secure financing than it has been in recent years.”
Brown says AlphaGraphics’ failure rate is very low, something that brings credibility to the table. It’s his job to go out and sell the AG story to prospective lenders.
“Our franchisee success rate is very high, which says a lot about AlphaGraphics as a company and the level of support that we provide,” he says. “Whereas we used to work primarily with three or four lenders, now we’re working with a dozen or more. We’ve expanded the pool to provide more opportunities to our owners.”
Part of Brown’s role is to find innovative financing, non-conventional means by which to put together deals that make dreams come true. For instance, some franchisees are leaving the corporate world and rolling 401(k) funds into self-directed IRAs, or C-corps that can use those funds now to finance a business without paying early-withdrawal taxes or penalties. Companies like Benetrans and Guidant Financial are helping with the transactions, and it’s an option that more than 50 percent of AG’s new franchisees are taking advantage of.
“A lot of new franchisees don’t know how much money they need or how to fund it – whether they are going to open a new center, purchase an existing one or even convert an independent print shop – and that’s where we can help,” he says. “It’s important to start these conversations early, and we can help guide you through the process.”
Brown says interest rates are starting to increase but are still at a very competitive 6% to 9%, versus the 3% to 5% at the historic lows.