We sat down with Joe Caruso and discussed franchise lending loan amounts with Joe Caruso out of Balitmore. We talked about the current deal making environment in franchising.
We focussed on deals about the $350,000 limit. Are things getting better, we wondered?
Bob Coleman: We're talking with Joe Caruso on the Strategic Committee of the International Association of Franchisees and Dealerships out of Toronto, a trade-based organization. He's also the President of the Capital Area Franchise Association. Joe, welcome; tell us about franchise lending today. What's it look like for you and your peers?
Joe Caruso: Well, at the Capital Area Franchise Association, or CAFA, we just had Steve Caldeira from the IFA in January commenting on a variety of things in franchising, but one of the most important topics was the access to capital.
Bob: Is it getting easier?
Joe: Yes, it is absolutely getting easier and the lenders that I talk to on a regular basis are saying that as well. It's getting easier for those people borrowing greater than $350,000; that $350,000 or less loan amount is still a challenge. The thing I hear recurring from originators and lenders is it costs us just as much money to originate a $350,000 loan as it does to do a $3 million loan.
Joe: And the quality of the borrower, they're more organized at higher levels; they're more sophisticated; it's just easier to get the deal done and it's more profitable.
Bob: Are you seeing that the deals that are being done - are they for second and third concepts, or can we still get financing for that start-up Franchisee who's just retired on out of Boeing?
Joe: The lenders are much more interested in seasoned operators who have existing operations that want to add to their portfolio, either with the brands that they already have, or they want to add an additional brand. There's no question about that, although a lender I spoke to this week is focused on, interestingly enough, Franchisors with less than 100 locations, but more than 25; and they are willing to do first time Franchisees. And the loan amounts are just above that 350 level; they're really in the $375,000 to $500,000 loan amounts; and they're focused on that. But they're more of a niche player, and more of a boutique firm.
Bob: Great. Joe Caruso out of Toronto; thank you very much for joining us and giving us an update.