Eric Davis e-mailed us for advice. He wants to know if he could
qualify for a loan to purchase a Curves franchise. Twenty years
old, Davis admits his credit is not good and fears his youth will
be a problem in getting a loan. I checked with two sources and get
their professional opinion on Davis' situation.
Chris Lehnes, vice president of business development at CIT
Small Business Lending: "CIT, like most SBA lenders, looks for
a few [specific] things in a franchisee. One is the strength of the
franchise. If we're going to lend money for a franchise
business, we want to feel really comfortable about the franchise.
Curves is a franchise we like, but there's a little footnote.
We make all our loans under the SBA program, and they have
requirements that a business cannot discriminate in any way. So
Curves, as long as they have a full facility for men as well as
women, we can consider it. But if there's no men's changing
room or bathroom, it's not eligible for SBA financing.
"Second, we look at the operator. We look at whether he or
she has good personal credit. It doesn't have to be perfect
credit, but we want to see generally good payment. Without seeing
this particular [prospective] franchisee's credit report,
it's tough for me to say, but generally, if someone has
bankruptcies, lots of judgments, tax liens, the chance of getting
SBA financing is very small. Then we look for management
experience, though it doesn't necessarily have to be in the
exact type of business. So someone who's 20, I'm not saying
it's an absolute no, but they can't be fresh out of school.
He needs to have had some time working, managing. If this
20-year-old is someone who, for the last three years, has been
working at Curves and managing it part time, he might be an ideal
candidate. But that is something we want to see. So 20 and just
graduated, probably not, but 20 and working in this role for a
couple of years, very possibly so.
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"Very honestly, it's very difficult for someone in that
position. You can leverage all your assets, take a lot of partners
like family and friends until you get it up and running, but short
of that, there aren't a lot of alternatives."
Michael Seid, managing director of franchise advisory firm
Michael H. Seid & Associates: "Even if you are looking to
acquire a popular and successful franchise brand, the chances of
your being able to borrow money when you have no credit or, in this
case, poor credit is not very good. The best way to raise that type
of money is from friends and family, since they know you on a
personal level.
"If the franchisor has a relationship with a lender or an
equipment finance company, they will be in a better position to
know the risk profile the lenders are looking for. It is doubtful
that the franchisor is going to guarantee your debt, so the lending
scores are what you need to rest on.
"We have advised franchise candidates in similar situations
to talk to the franchisor and see if there are any franchisees who
are looking to expand. Occasionally, a franchisee who is ready to
expand can't do so because he or she does not have qualified
management for the next location. The candidate might be able to
earn into a franchise through some long-term sweat equity.
"The alternative and likely best advice is for him to get a
job. Pay off his debts. Get his credit house in order and come back
to this in a few years."