Franchise finance -a story of one disaster

Recently I had a client who ran into some bank financing difficulties. While the problem was grave and I do not entirely fault the Bank given today's nervous credit market, I believe there are solutions to the problem that could work

Here are the facts in the case:

Client bought a franchise, went for training while store was being built and was ready for opening in two months. The contractor had completed half the construction; deposits had been made on Equipment, Millwork and of course the lease. Client had about $70,000 into the deal at this point with a Bank approval letter for the balance of funds.

Before funding the approved loan, the bank checked the client's credit score. It had plummeted because of a tenant default in a property he owned and he had fallen behind in mortgage payments as a consequence, so the late pays showed up and the credit score was pulverised.

The bank balked at funding the loan as it did not meet with the new criteria.

Ultimately, he had to give up the whole project and lost everything including the lease.

So what can we learn from this?

1. You must know your credit score at frequent intervals if you are having problems, because your bank could itself check at any time

2. In order to mount a rescue, the client needed a co-borrower with higher scores and/or a guarantor

3. The client could have invited a partner/angel investor to the table for the venture for a share of the business

4. The client could have arranged for private financing purely on a loan basis from friends and family

5 The client may have had a slim chance to sell the location to another willing franchisee.

Other than the above , I could not see another way out for him

If you have challenges you would like some answers to, contact me by e mail or at 800-401-6424