Business Funding Solutions and Services

Lance Hood (FranPro) 0:09

Welcome everyone . Today I have Sherri Sieber the president of FranFund . Welcome to the call .

Sherri Seiber (FranFund) 0:18

Thank you very much . Nice to be here .

Lance Hood (FranPro) 0:21

Sherri , can you briefly introduce yourself and share a little bit about your background ?

Sherri Seiber (FranFund) 0:26

Sure , so Fan Fun . I'll start there . It'll be obvious how I fit in . We were the originator of the idea of multiple funding solutions under one roof , as you probably know , our competitors quickly followed suit because it's a brilliant idea . What was happening prior to that was an individual considering business ownership would have to go directly to a bank . They probably didn't know about the role of a business startup solution except . So putting all the solutions under one roof is really smart . I had a career outside of the franchise industry , but my husband our CEO the company has been franchising his entire career . I tried retirement . That lasted about five minutes . I got involved in the business and franchising is just such a fabulous place to be . It's an incredible connection in business for yourself but not by yourself . That's the big tagline everybody uses .

Lance Hood (FranPro) 1:39

Well , I like that you talked about how you provide these services that people hadn't done in the past . Can you explain those services and maybe also how you're a little different from the other companies that are doing similar things ?

Sherri Seiber (FranFund) 1:55

Well , you know it's hardly humble , right ? So , first of all , when people think of SBA , the SBA is not lend money . You can barely tell that , though , from the way that , when you hear them speaking , that they're not actually lending money . What they're doing is they're providing a guarantee to lenders to incentivize them to do riskier loans . Riskier loans are typically those that are first-time business owners , startups . You know somebody that's been working for a company for 20 years and all of a sudden , now they want to be a business owner To a bank . That's risky . Even though you may have credit situation that looks like you walk on water , the number one thing banks worry about is how are you going to hand it back ?

Sherri Seiber (FranFund) 2:45

Okay so that doesn't work for everybody the SBA loan , although it's a brilliant product and it's a part of our government that works very well . The second one that people are usually surprised to learn about and then , once they kind of get it , they go wow , this is crazy . The IRS and the Department of Labor are the two entities that govern a process that the IRS lovingly created an acronym for called ROBS . Robs is Rollover for Business Startup . The simplest way to explain that is to say that if you , for example , call your wealth manager today and say I would like to buy $100,000 worth of Apple stock , okay , at the end of that transaction , apple has your $100,000 and you have Apple stock . Now what you hope happens ? As an investor that is trying to make prudent investments to grow their wealth , you hope that Apple does something that increases shareholder value .

Sherri Seiber (FranFund) 3:56

Okay , this ROBS process is exactly that . Only the difference is you are investing your own qualified retirement money into your own company's stock , and the point of differentiation I need to make there is you are not liquidating your 401k or your IRA or the 400 other names for that retirement funds that are out there , because , of course , you'll hear various people whispering in your ear whatever you don't miss with your retirement funds . What you're doing is investing in yourself . Now , if you don't get up every day and go , get ready to just kick and make the best business you possibly can , then that is not the solution to you . But if you think you can grow your stock value of your own company because you have the protection of the franchise space , where you have a prudent model , then it is a good idea for you because that same $100,000 investment in three to five years could be a million dollars . And you know I don't wanna name specific wealth management companies , but you know you have to challenge their ability to grow your retirement funds that quickly and we've seen success story after success story with that process , some of the other products that are out there .

Sherri Seiber (FranFund) 5:22

There's right now an unsecured term loan and that is for folks who maybe they don't have credit history for SBA , maybe they're not old enough , because we've seen a lot of millennials entering the industry right now , which is exciting . Maybe they haven't had time to accumulate enough retirement funds . That's a loan , a term loan that goes out to 10 years and you know interest rates , as you might expect , are a little higher than an SBA loan . It's still a tremendous opportunity for somebody to get in on something that's the right timing for them .

Sherri Seiber (FranFund) 5:57

Other things home equity loans and there's a time and a place to use those securities backed financing , time and a place to use those as well . Probably a few other creative things like fleet funding , for example , and what we do here is have a conversation with each and every candidate to look at their current financial situation , their current liquidity , their current comfort level and how much they're willing to borrow , and then we make suggestions about a solution that would be perfect for them , and we are . That service is free . They don't pay us until they actually engage us for a service , and the two services that we do in-house basically are various types of loan products and the role of business startup .

Lance Hood (FranPro) 6:52

Mm-hmm . Yeah , you talked about your 401k and stuff , and what I see is , if you're paying a company to manage that money for you and then cut you a profit , it's probably a lot easier if you're capable to keep all the profit through your own business and you have more control of it .

Sherri Seiber (FranFund) 7:18

So what I'll say about that is there . One of the most exciting benefits of that program is , let's say , that same $100,000 example I used in the beginning . If you were to take a liquidation or distribution of those funds from your provider , you would pay ordinary income tax and just for my simple math purposes I'm willing to say that's 30% , although we all know that's Swing's Wiles . So 30% . So that cuts you down to 70,000 . If you are under 59 and a half , you will pay a penalty of another 10% . So again , simple math . That leaves you with $60,000 .

Sherri Seiber (FranFund) 8:01

If you do this process , you have use of all $100,000 in the very first day that you complete this . Now you can decide whether it's a good thing or a bad thing to be sort of in business with the IRS or with the IRS . So you have to make sure that you have the right amount of money . As long as you have no ill intent , it's completely safe . The IRS requires that you have a third party administrator for oversight , as you might expect , because they would like you to make a lot of money so that you will owe them a lot of taxes , but still it's a tremendous benefit .

Sherri Seiber (FranFund) 8:36

But then all of a sudden , you are able to offer employees if you choose the 401k route versus profit sharing only , you are able to offer your employees a plan where they save three tax dollars for their future . And that is an incentive , especially if you're running a type of business that may be semi-passive or semi-absent I'm not passive , semi-absentee and you need somebody as dedicated as you are to the success of that business .

Lance Hood (FranPro) 9:07

Well , what are some of the biggest pain points or challenges you see people experience when they're going through the loan process ?

Sherri Seiber (FranFund) 9:19

One of the things that make us popular with lenders and lenders . Being popular with lenders is a very good thing . We have a staff here that is made up of former I like to call them recovering bankers , just as I've called them that so long . When I don't say that , they say hey , you know , we're still recovering , but anyway , we have a team of bankers and loan processors that are highly trained and we work with canages to put their loan packets together and , first of all , if we give them a pre-approval , it is not a rubber stamp . We have a software program that emulates what banks use for credit assessment . So , first of all , if we give a pre-approval , it's not a rubber stamp , confident that it's going to happen . We're 99% successful with that . The 1% , you may not be surprised to learn is because the candidate may have forgotten to share some extremely important information with us that makes the loan possible . But anyway , we put together the full loan package and then we shop it to our portfolio of lenders to get the candidate the best rates and terms possible .

Sherri Seiber (FranFund) 10:46

When we're going through the process of putting the paperwork together and it is not , I mean , I'm just going to be blatantly honest .

Sherri Seiber (FranFund) 10:55

If you've got ever a loan of any kind .

Sherri Seiber (FranFund) 10:57

You know that filling out paperwork is not fun , but Frantz-Font has some templates and we can provide some guidance not coaching , because we are not a fiduciary but we make sure that when we send that package in , if there was 40 pages to your 2019 tax returns , all 40 pages are there . And if you need 40 and you send them 38 , your package is going to go on the back of the credenza , not on the proper stack to be dealt with . So , making sure and sticking with our candidates to make sure that they are providing us the information we need on a timely basis , that makes the loan process go faster . And then , if there's bricks and mortar , you know that's a pathway because you've got to wait for a few things . You know leases and tenant improvements and things like that . It's a service-based type business . The candidate is cooperative . We have a portfolio of lenders that understand franchising that like franchising . We make sure we cover all the market segments in franchising with these lenders across the country so that when we get all the data put together , we're ready to go .

Lance Hood (FranPro) 12:09

Oh , very nice . Can you share a few of the stories where your company's made a dramatic impact for a franchise company , Like maybe , because sometimes you just think a loan's a loan , but sometimes growing a lot of units depends on hooking up with the right supplier ?

Sherri Seiber (FranFund) 12:30

I have a lot of those stories . A couple come to mind . The first one is a company called Ele Mental Health . That is , adolescent mental health care , which is a niche in the country that is woefully underserved . And so the fact that these and the great folks that have met the founder several times and they are just the type of people you'd expect that would be founding a adolescent mental health company but they hired a FSO , which is a franchise sales organization , refum and they found lots of folks interested in that concept all across the country . Since we met them early and analyzed their first FPD and taken it to a couple of our lenders to say , hey , is this a deal you'd be interested in funding ? And found several that said yes , but let's look at it . They were able to launch very quickly and I don't want to say their numbers , but they sold several hundred , and so they have caused development to get those units open , which is also a high integrity move on their part and very impressive . So lenders also love seeing something like that , because if you have a lot of units that are sold and not open , people start to question .

Franchise Funding and Loan Process

Sherri Seiber (FranFund) 14:00

The next situation is a company that and I'm not going to name company names on this one .

Sherri Seiber (FranFund) 14:10

During COVID , some market segments like fitness became very scary to lenders because let's say , you have a cycling fitness center and you're used to having 50 bikes in there per hour running and generating revenue and now you have to space them out and you've got now 18 bikes in there where 50 used to be . That creates a situation . We had a company that did martial arts training . We worked with them and explained the lenders concerns . Their philosophy to begin with was childhood education , anti-bullying , learning to be young men and young women , discipline , etc . So they flipped their sort of main objective from martial arts and fitness to childhood education and quickly came up with a reconfiguration for their studios . Lenders liked it and so they didn't miss a beat and we helped them with that and was really proud of that .

Lance Hood (FranPro) 15:28

Very nice . What would be the process of working with your company ?

Sherri Seiber (FranFund) 15:35

It's pretty simple . We have a robust website where somebody can go around and poke around and fill out a form . You know that will pop immediately to someone here and we try and follow up and it's absolutely as soon as possible and provide that person with a Calendly link to one of our funding consultants so that that person can be in charge of when they want to talk to us or if they're referred by a franchise consultant or a franchise , or then we sort of get involved with where in the process is that candidate try to learn , you know , are they still in the process of narrowing down the brains they're considering , and if so , we do a higher level financial dive because we won't know the total project cost until the actual business itself has been chosen . So but we'll , you know , we'll have a conversation with them and it's almost like kind of an overused analogy , but still affected when you go into a car showroom , you like to know whether you're going to be buying the shiny car that's on the spin table outside or one in the back lot that maybe was used a few years . Similar to franchise space . You don't want to be looking in a space that not only are you qualified to be in terms of what your financial capabilities are , but that you're also comfortable with , as you know , an investor in , in a business and in your future , and so helping us , helping with that helps before they've gone through sort of a funnel and then , once they have chosen that business , we stick with them through .

Sherri Seiber (FranFund) 17:25

Okay , where are they in the investigation process ? When are they planning on going discovery day ? What's the expectations when they plan to be open and we create a timeline that says , okay , you won't be open by , you know , november 1st . We have engaged on this day and , you know , put some milestones in place . That's very comforting for folks because , yeah , never done this before and that's really where we add value to people that maybe they've gotten them mortgage to their house . But that's a whole different part ballgame because the bank knows where that house is and they can sell that house whether you're in it or not . Business is a whole different ballgame . So it's good to be planning ahead and know what those triggers and milestones are and have a partner with you , like friend funds , who's just trying to facilitate this funding process and make sure you can realize you bring business ownership when you want yeah , it always surprised me the amount of people that would want to look into a business , engage , go through the process and not even know if they qualify financially .

Lance Hood (FranPro) 18:33

I'm sure the franchise or drives them crazy unfortunately , we see that every day .

Sherri Seiber (FranFund) 18:40

We frequently get leads in our system overnight by somebody who's doing a long line of the subway and they think that they must be printing money out the back . And you know , now they want to own one really . They're just still hungry . We , we can help sort all of that out very nice and you have different loan products .

Lance Hood (FranPro) 19:03

What are the timelines that takes on average ?

Sherri Seiber (FranFund) 19:06

I know they very wildly , but for those loans to go from the first time you met him to funded the first time I met him to funded is a difficult one to answer because , as I said in sort of the last paragraph , we meet some of them before they even met the first franchise , and then some of them where they've already been , sort of they were confident enough in their own financial capability that they allow themselves to go mostly through the process .

Lance Hood (FranPro) 19:40

But I'll back up and give you the answer well , what about from the time they decide to engage ?

Sherri Seiber (FranFund) 19:47

that's a better , easier to answer with more accuracy . The role of a business startup is typically the fastest , most efficient thing you can do . If your funds are already with a previous employer . It's somewhere around a 21 business day process on the outside and there's a couple things we can do to speed that up and those funds can be put to use immediately for any legitimate business purpose . So that's a wonderful thing .

Sherri Seiber (FranFund) 20:27

The SBA situation again the average , I'm gonna say 45 to 60 days . You can expect that you can lengthen that as a borrower by not providing information when asked and if we are annoyed because you're being asked for the third time for the same information and delay giving it to them , you will , your loan will be delayed . So there's a lot of that . The other part , from the lender's point of view they have a staff that is typically limited to X amount of capacity and one of the reasons why the loan process extended during COVID was because they didn't increase staff and a lot of the banks were doing the PPL loans , so that crunched down the banks capacity . So that's still what you deal with today . But having a partner like Fran fun , and again we have . We have lenders that we work with . They see a friend from loan package come in , they go , okay , top of the stack . So that's a great situation . Bricks and mortar may take a little longer . Service based business may take a little less . So it's not .

Lance Hood (FranPro) 21:46

It's not a difficult thing well , and you have to explain to people too , is the difference between going to their local bank , where they do checking for a franchise loan , and actually going to a company designed to help with franchise loans well , that's a good time for me to interject .

Sherri Seiber (FranFund) 22:07

Banks are in business to attain a tenant or clients that deposit money in their bank in any shape or fashion . So what happens to a lot of folks that are interested in seeking a small business loan ? They'll walk into a beautiful bank lobby and talk to one of the nicely dressed young men or women sitting behind a nice mahogany desk out front there on the bank floor , and they'll start to ask questions about you know , thinking about a business that looks like this . Do you do a loan for that ? Yes , well , I'm thinking about opening that business on such and such day . Does that make sense ? Yes , you know .

Sherri Seiber (FranFund) 22:54

So the bank , the borrower , might leave that room thinking that , slam-dam , this is going to work out perfectly . This bank's going to be my loan , everything's great . And they're very shocked to learn that they didn't even get past their pre-process . Those people have zero authority to approve loans of any shape or size , and so they are often disappointed , and so that's an important thing to note . Banks are saying , yes , yes , we do loans . Yes , we do loans for your type of business . Yes , we do that size loan . You didn't say we were going to do your loan . So that's a shock for people a lot of times . So the approval rate , the success rate nationwide for people walking into a bank and getting a loan for a small business is 38% , which is why we like to report that our success rate for qualified candidates is 99% .

Lance Hood (FranPro) 23:56

Yeah , it's a big difference .

Sherri Seiber (FranFund) 23:58

Huge .

Lance Hood (FranPro) 23:59

And people wouldn't realize that . What can people do to effectively speed up or shortcut the process ?

Sherri Seiber (FranFund) 24:15

If you are doing your franchise investigation , you've likely been told whether they have a meet-and-greet , a success day , a discovery day , whatever thing they call it where , if you are a candidate , they are seriously considering offering a franchise agreement to you . Can you know the date that you have the opportunity to attend one of those things we offer then to become a part of that system , which you and I know is not a guarantee , right ? They're shopping the candidate as much as the candidate is shopping the franchise , but they typically are offered the ability to join that system on or shortly after one of those special days . If the candidate is truly serious and not just tire-kicking , they will have their funding strategy lined up and ready to go , either shortly before they attend that day or the day after they get back from attending that day .

Preparing for a Business Loan

Sherri Seiber (FranFund) 25:25

It's timing of all those things can be affected by a lot of things . For example , if you want to get open on January 1st and I'm not saying it's impossible to start late and still have it happen but you probably need to have your funding lined up in October to make sure you can open in early January , so things like that , because the fourth quarter of the year you've got some holiday gotchas in there and people . They may be working , but they are not working as hard as they are working in February , and there's holidays , there's vacations , you know . So Sally took a week off to go see her family , and now that's one less loan processor that's in the mix . So again we're back to that capacity issue . So planning ahead , letting your funding partner know what your intentions are and putting the strategy together to match those intentions will shortcut a lot of payments .

Lance Hood (FranPro) 26:37

And what can people do to get even better results with their loan ? And what I mean is for the things that they can do to prepare for this loan process . I also think about credit scores or anything that they can do on their part in advance or during the process .

Sherri Seiber (FranFund) 26:55

Absolutely Well . First let's talk about credit score . Credit score is one number that the lender is interested in not being , because you could have someone , for example , that owns several businesses , is leveraged but yet have a great , demonstrated history of repaying all the loans that they have out there . That person's credit score might be under 700 , but with all the history that they've shown of paying back loans on time they won't have , I mean , that credit score is not a problem . If you have a 680 credit score , have never bought a house , have , you know , no great credit history , that's going to be a problem .

Sherri Seiber (FranFund) 27:47

The second thing is burn rate . I'm going to explain that because it's everyday language for me but maybe not for everybody on the call here . Burn rate is where you take all of your monthly expenses and subtract those from your monthly income and you see how much from your monthly income and your savings and all other liquidity that can be applied towards paying this thing . So that's groceries mortgage , you know , keeping the lights on making your car payments . And then if you're considering a business loan , to that you must add the loan payment and the lease payment if there's a proper including from that .

Sherri Seiber (FranFund) 28:35

Okay . So if you , let's say , got . Hello , sherry , easy math please . If you've got $50,000 in the bank that can be used for those types of expenses and you are spending $10,000 a month , you can do some simple math and find out you have five months worth of money before you run out until you have more coming in . So this is one thing that catches people off guard because , okay , $50,000 , that's not nothing , I'm out of money . That's a good amount of money , right . But if you've left your job and you don't have another outside source of income and you're starting a brand new business , you know , you're .

Sherri Seiber (FranFund) 29:23

No , I'm not even going to rephrase that . It is unusual for somebody to start covering their expenses in the first five or so months of opening that business . So that's when we do some very simple math and say , okay , there's not enough liquidity here to satisfy what lender is going to want . And that situation when you use a roll over for business startup , nobody cares about your credit score . There's nobody that's going to say qualify or unqualify . The thing you have to remember there is it has to be money from a previous employee , it cannot be a current employee . So that's why a lot of folks use that money either to completely pay for the business , to self-fund the business , maybe with some cash that they also have , or use that money for a larger loan amount , equity injection . So let's say a $500,000 loan , the lender is going to be looking for about $100,000 of equity injection from the borrower , and so most people will have $100,000 in cash laying around , and so a 401k from a previous employer or multiple loans combined together can satisfy that .

Lance Hood (FranPro) 30:46

And that's what people refer to as having good post-closing liquidity right , Exactly right . Post-close liquidity is directly reflected on or a reflection of your burn rate , which is why some people will say , well , I have enough money to buy this . And then the bank says , well , we want you to have even more money and savings than this .

Sherri Seiber (FranFund) 31:10

Yes , and again , it's simply that the bank wants you to be successful and it is a proven fact , and I wish I was the author of this next statement . But you know , use it anyway . Businesses fail for a lot of reasons , but being overcapitalized is not normal . That is something in starting up your business as either a franchisor who has just founded a new concept , that's very exciting . We recommend that those franchisors their first 20 franchises are going to tell that brand story for the next several years , either in a positive way or a negative way if they've chosen for them . A lot of new franchise founders are so excited that they have a couple of people interested in their brand that they don't consider the long-term effect of work capitalization and therefore they're in their item night or in their item night team in the next couple of years they're recording that they open five and close two or one .

Sherri Seiber (FranFund) 32:17

Same thing with the borrower . The last thing you want to do is be so cash-pike that you've been open , let's say , seven or eight months and the franchise says hey , we've got this great marketing campaign and you need a little extra cash to participate in it , but we guarantee your revenue will increase by X if you participate in this and whoops , you're out of money . That happens more often than we would like to see . Paying out your capitalization and making sure that you're not skinny is a very good thing to do .

Lance Hood (FranPro) 32:59

Thank you so much , Sherri , for joining us , For everybody who's listening . If you'd like to learn more about Fran Fund , you can go here https://Franpro . vip/GoFranFund . Very simple , Alright , Sherri . Thank you so much and thanks for being a resource in our industry .

Sherri Seiber (FranFund) 33:23

Thanks , Lance .