In The Money
Commercial Capital Corp., a leading New York City-based small-business lender, expects to increase the number of loans it makes to franchisees to a level representing 30 percent to 50 percent of its lending activity.
One of 14 lenders licensed to issue SBA-guaranteed loans, Commercial Capital approved about 300 loans averaging $250,000 and totaling approximately $70 million in 1997. More than one-third of the loans went to new franchisees.
Many applicants seek working capital loans, which are typically short-term, lasting seven to 10 years. For long-term financing of up to 25 years, there are no prepayment penalties, says Craig Reynolds, Commercial Capital's president and COO. "If things go well, they can prepay [the loan] or refinance for a second or third facility," he says.
While numerous potential franchisees meet Commercial Capital's loan requirements, Reynolds says others are declined because they lack relevant business experience. "Sometimes, people are purchasing a business [that's not right for them]," Reynolds says. "They might have come out of a major corporation and are purchasing a small business but don't have the skills to run it."
All is not lost for these applicants, however. Commercial Capital refers them to the SBA's Service Corps of Retired Executives (SCORE), which offers free counseling for start-up businesses. SCORE helps applicants--including many potential franchisees--prepare loan forms and assess the appropriateness of the type of business they've chosen.