Reality: Banks are more selective in making a new loan or renewing a loan. Banks are risk adverse and thus the borrower must be better prepared to answer the questions the bank requires. We help businesses get start-up and expansion financing nationwide.
2. Myth: SBA loans are more difficult to get because of all their regulations.
Reality: Most banks like SBA guaranteed loans as it reduces their potential loan loss risk. If a bank makes a conventional loan its risk is 100%; however with an SBA loan guaranty that risk can be reduced to 25%.
3. Myth: It takes 6 months to get an SBA loan.
Reality: Only if you approach the bank without being properly prepared. If your business plan meets the bank's requirements; you have 25% to 30% of the total funds required of your own cash, you have a FICO credit score of 680+, you have related industry experience, your business plan answers the Who, What, When, Where and Why, and your monthly financial plan is realistic an SBA Preferred Lender can approve your loan in as little as 3 to 5 business days. If the bank is not a preferred lender they must submit the package to the SBA for approval and that can take 3 to 5 weeks. We help you prepare the business plan loan package the banks need to make a loan commitment and then we take it to a bank that's interested in making you the loan.
4. Myth: Using a software based business plan helps you create a good business plan.
Reality: Business plan programs have to be everything to everyone and thus they do not get you to focus on the critical questions a bank requires. Banks are not fazed by the razzle dazzle of fancy graphs and charts...they love cold hard facts.
5. Myth: The business banker was excited about my business plan and said the bank is anxious to make new business loans. Weeks later you receive a "sorry we cannot make the loan you requested"; what happened?
Reality: Often the business banker you first meet with is a business development officer -- think sales person. Their job is to take your business plan and perform a "light" review so they do a "new business report". They have no lending authority and your business plan goes to the bank's credit analyst for an in-depth review as to its feasibility. Banks compare your business plan financials to similar type businesses and if your plan is too optimistic or conservative it's rejected.
6. Myth: If one bank declines my loan request will all banks decline it?
Reality: Definitely not. If your business plan meets the bank's requirements; you have 25% to 30% of the total funds required of your own cash, you have a FICO credit score of 680+, you have related industry experience, your business plan answers the Who, What, When, Where and Why, and your monthly financial plan is realistic, a bank may still decline your loan. BUT they may decline your loan not because of your business but because they are risk adverse due to loan losses (won't do loans to startup businesses) or they have a large concentration of loans to your industry.
7. Myth: If you have a great business plan and it answers the Who, What, When, Where, and Why and you have the cash to invest, good credit and related industry experience, you still get funded.
Reality: Often it's because your lifestyle requires more income than your business can generate (especially if it's the first year of a startup business). If your current or last job provided you $100,000 of pretax income and your new business can at best provide $36,000 the first 2-3 years, where will the extra money come from to pay your lifestyle expenses?
8. Myth: Banks want you to have medical insurance.
Actually it's True: Why because if you or family members were to require health care and you did not have medical insurance, banks know that you would use the loan's working capital to pay the medical bills -- leaving the business not enough money to pay bills on time, buy inventory and marketing; a receipt for failure.
9. Myth: If you have 10% of the total funds required to open and operate your business and you have a solid business plan you will get funded.
Reality: Banks must minimize loan loss risk. Without 25% to 30% of your funds in the business the bank is effectively "buying" you a business. The bank would have nearly all of the risk and you would have all of the upside reward. The most the bank would get would be the interest if you were successful. Banks help you finance your loan but are not your equity partner!
10. Myth: SBA loans don't require collateral.
Reality: As a guideline the SBA only requires collateral on the loan if it's available. Banks are free to have more stringent requirements and most do. Most banks won't do an SBA loan without 25% to 75% of the loan collateralized. Conversely, most banks require conventional loans to be 100% to 150% collateralized depending on risk.
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Some franchisors are "pure play" restaurant, Dunkin Brands (DNKN), Burger King (BKW), and DineEquity (DIN). Sonic Drive In (SONC) and Domino's (DPZ), because they have more than 90% franchised units.
Each of these has moved towards or has always has been at a 100% franchised model for years, eg. (DINE, BKW).
Wall Street likes these storylines: "asset light", "capital light" and "franchisees are exposed to commodity risk, not the company" logic lines.
Lofty stock valuations follow, at least for many of them.
But these "stories" do raise some questions for investors:
(1) Who is then paying for expansion, or for commodities;
(2) If the company essentially franchised, how is the underlying health of the company being reported or analyzed?
Franchisors rarely talk about this, and on some earnings calls, there is not one question from the sell-side community on this (perhaps anticipating resistance from the company).
McDonald's (MCD) has made franchisee owner/operator cash flow (EBITDA) narrative in several recent calls, and DPZ did once.
In the past, what few questions asked by the sell-side revolved around:
(A) same store sales levels;
(B) stores opening or closing, or;
(C) franchisor bad debt expense from uncollected royalties.
While these factors are interesting, they only collaterally get at the true health of the system.
Here are six factors that could be asked by the sell-side community and reported by companies to improve investor disclosure:
(1) What is the store development pipeline (stores under franchise agreement that haven't been opened yet)?
(2) What is the 5 year historical miss of stores in the pipeline that don't get opened?
(3) How many franchisees are in default of their franchise agreements but still open?
(4) Is the franchisee operator expanding number of stores or not?
(5) What percentage of total franchisee operators are franchisee cash flow positive (store level EBITDA isn't the best number, but its something).
(6) How many franchisees are remodeling or current on their remodels?
These are all metrics that the franchisor has or should have, that could be reported either annually, or on a trailing twelve months basis.
Disclosure: When I originally wrote this almost 2.5 years ago this was true: "I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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You need $50,000 for your business. You have several choices: merchant cash advance, lease or loan.
How much does each option cost you?
What would you want to pay for the use of $50,000? Here are the numbers: daily Advance payment of $445 daily, a lease payment of $1,062 monthly or a loan payment of $580 monthly? There's not much of a decision here.
Cash Flow is king.
A new SBA guaranteed bank loan program available to franchisees at 6-7% interest over 10 years and is less expensive with longer terms than equipment leasing for acquiring new equipment or fixtures or a MCA for either equipment or working capital.
The result is cheaper money.
In addition to this fresh money many franchisees will also qualify for re-writing older more expensive debt such as equipment leases, credit cards and merchant advances into lower cost and greater terms.
The loan is available to any franchisee that has been in business for over 2 years and meets reasonable credit criteria that most will meet.
By utilizing new online technology a franchisee may get pre-qualified in 5 minutes, pre-approved in 30-60 minutes and funded in as short as ten days.
Call me, Bob Shaw, at 734-929-3800 to discuss your options.
When lender experiences a default for an SBA guaranteed loan, there are several considerations the lender must review.
If a borrower defaults within 18 months of initial disbursement (or, if the final disbursement was made more than 6 months after the initial disbursement and the borrower defaults within 18 months after the final disbursement), the SBA considers the loan an "early default".
The date of default is generally determined by the first uncured payment default of 60 days or more.
However, if a borrower, during the first 18 months, has significant problems making full principal and interest payments as scheduled or is granted a payment deferment of 3 months or more, the loan is considered an "early problem" loan.
Early default and early problem loans are subject to heightened scrutiny. There are two considerations a lender needs to review.
1. Under SBA regulations, a full denial of liability is justified if the loan involves an early default, or early problem and the lender failed to provide credible evidence that it verified the borrower's financial information by comparing it to relevant IRS tax return transcripts, as required by the version of SOP 50 10 in effect at the time the loan was approved.
2. Additionally, if there was an early default or early problem loan, the lender's failure to verify and properly document a material portion of an injection of cash or non-cash assets required by the Loan Authorization raises a rebuttable presumption that the default was caused by the lack of the injection and a full denial of liability is almost always justified.
However, in both cases, a full denial may not be justified, however, if the lender provides credible evidence that the business failure was due to factors unrelated to any financial difficulties that the lender could have identified through the IRS verification process or which were caused by the lack of equity.
To rebut the presumption, the lender must provide credible evidence that the primary cause of the default was something other than the lack of the required injection or information used in the repayment analysis, e.g., the death of an irreplaceable key employee or a natural disaster that destroyed the borrower's business premises and customer-base.
As a practical matter, the failure to adequately verify equity injection or obtain IRS tax transcripts is an automatic denial of the guaranty if the SBA considers the loan to be an early problem or early default loan.
However, there are some limited circumstances in which a lender may be able to rebut the above-described presumption.
For more information on SBA loan programs, please contact us.
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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.
Bob: Absolutely.
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.
Many communities are still feeling the effects of Superstorm Sandy, including power outages and flooding.
The importance of listening to instructions and safety information from your local officials and FEMA cannot be understated.
Federal response teams are already providing assistance to affected communities. SBA is closely coordinating with our federal partners to share information in the immediate aftermath of the storm.
If you need emergency shelter, you can download the Red Cross Hurricane app, visit the Red Cross web site, or check your local media outlets.
You should also register on the Red Cross Safe and Well website, a secure and easy-to-use online tool that helps families connect during emergencies.
Finally, you can download the FEMA smartphone app or text SHELTER and your Zip Code to 43362 (4FEMA). Standard rates apply
If you're not in an affected area, please consider donating blood, because numerous blood drives have been canceled as a result of the storm. To schedule a blood donation or for more information about giving blood or platelets, visit redcrossblood.org or call 1-800-RED CROSS (1-800-733-2767).
SBA plays an important role in disaster recovery efforts for businesses and homeowners.
As disaster assessments and declarations are made, various SBA disaster recovery loan programs become available to eligible applicants. We will continue to highlight these programs as communities turn to longer-term recovery efforts.
For more information about SBA's disaster assistance programs, visit www.sba.gov/disaster or call our disaster assistance center at 1-800-659-2955.
The SBA has made it a priority to improve quality control and scrutinize defaulted loans, especially early-defaulted loan for fraud, waste and abuse.
The Office of Inspector General ("OIG") has released several reports detailing areas of repeated patterns found in early-defaulted loans.
Loan agent and borrower fraud, eligibility, and use of proceeds are just some areas where material deficiencies have been found in early defaulting SBA loans.
Early defaulting loans are reviewed carefully for material deficiencies at the National Guaranty Purchase Center. Lenders should be aware of the most common reasons for SBA loan early-defaults and implement policies and controls to protect against those issues in their own SBA lending practice.
Loan Agent Fraud. If you are using loan agents, make sure you have a Lender Service Provider agreement in effect, approved by the SBA. Before you start working with a new loan agent, get references from other lenders to determine if the agent has a history of early defaulted loans. While almost all loan agents are ethical, OIG findings on early-defaulted loans found loan agent fraud to be a factor in many cases.
Issues to consider when working with loan agents in order to minimize fraud include: control of communications by the loan agent; whether a loan agent threatens to "shop" the loan elsewhere in an attempt to pressure the lender to close the loan; submission of a high number of "qualified" borrowers in a short period of time; difficult questions/issues are easily resolved (i.e., missing documents are quickly generated as the result of an inquiry or ledgers created to document a pre-existing debt); the loan agent wants to use specific appraisers or title companies; and whether the loan agent charges excessive fees.
Prudent lending practices when dealing with loan agents include tracking the loan agent's participation in the lender's portfolio to determine whether that individual is bringing in an unusually high number of early-defaulted loans or the loans have other material issues.
Borrower Fraud. Examples of borrower fraud include misrepresentation regarding the original purpose and use of refinanced debt; false equity injection, gift letters or affidavits, promissory notes and standby agreements (i.e. no intention of putting the obligation on standby), false financial statements; overvaluation of assets; failure to disclose outstanding debts; overstating income, failing to disclose true ownership of a business or common ownership between a seller and buyer; submitting altered tax returns; and misrepresentations regarding affiliate size.
OIG found many instances of fraud in Change in Ownership transactions. Lender due diligence must include obtaining copies of all relevant purchase documents. For example, in a stock redemption transaction, obtain a copy of the stock ledger and copies of all issued stocks pre and post closing. The stock certificates should be redeemed and retired, and not transferred or reissued to an individual. Selling shareholders should resign as an employee/officer/director of the company. Resolutions are also required showing the appointment of any new officers/directors.
Lenders are expected to comply with the equity injection verification requirements contained in SOP 50-10-5(E) Chapter 4 and SOP 50-51(C) Chapter 13. OIG investigations have repeatedly found that the cash injection was actually borrowed. Further, Lenders should verify gift money with at least two (2) months prior bank statements from the giftor. Lender should also obtain evidence of the transfer of the funds to the Borrower and an affidavit that no repayment is due to the giftor.
Fraud by loan officers and other lender employees. The SBA has recommended Lenders implement internal controls to both deter and detect suspicious lending activity, including: development of sufficient management oversight of loan approvals; policies (such as a Code of Conduct) to require business development officers and other lender personnel to disclose the involvement of brokers and loan agents in generating or packaging loans; limits on commissions and other internal inducement that incentivize loan officers to concentrate on loan volume rather than loan quality; internal review and auditing functions to analyze patterns of early defaulted loans or other material issues and the personnel involved; and policies to require a higher level of review on change of ownership transactions.
By originating and closing loans in accordance with the SOP, and using prudent lending standards applicable in any commercial transaction, a lender's risk of processing a fraudulent or early defaulting loan can be greatly reduced.
All instances of fraud should be reported to IG immediately. Contact the OIG hotline at 1-800-767-0385 or[email protected].
What we have all realized, is whether we are Republican, Democrat, or Independent, we want to get the recovery going.
How are we going to do that? Small business creates 65% of the jobs in this country. That is where the jobs are created.
We need to get people back to work and people want to get back to work.
There is some good news. We are seeing deals getting done.
Yesterday we did a webinar for the hotel industry, and what they are seeing is transactions being made. Mom and Pop's are buying these hotels, they're buying these franchises, and there is a lot of activity in that.
It is very difficult for our small business bankers to lend money today, so the banks need to have some sort of inducement to reduce the risk.
90% of the deals beneath $5 million were done with an SBA guaranty.
This is an intriguing snippet from the IFA's Small Business Lending Summit. I would have liked to seen the break-out of remodel and upgrade costs from Calderia. We are likely going to see remodel and upgrade "holidays" if the franchisees cannot get the financing.
The housing market is going to take probably a generation before it becomes accessible as an ATM again. I don't see what the new sources of collateral are, and where they are coming from.
The basic problem for franchisees is that many of them are not seeing their usual loyal customers - they have become price shoppers. Loans cannot fix that supply problem.
We all know about the residential liar loans - no income and no asset. Not surprisingly these loans took on the nature of a gamble, benefitting only the originators who took out their fees early on.
Are there commercial liar loans - a loan based on projections of income that make no commercial sense? Is the practice widespread? If so, what is enabling it and how can we stop it?
Most lenders thought future projections were unimportant. "That was pretty much the whole industry that did it that way," he declares.
He thinks future financial estimates for a business were never a high priority for bankers in screening the viability of an SBA-guaranteed loan.
"Projections were seventeenth on the list," he emphasizes.
While one or two quotes from SBA authorities is not evidence of systemic failure, my personal view is that there is a good possibility of systemic SBA loan fraud. (I am not complaining that projections are bad, but rather that the mechanisms to rein in or eliminate bad projections are being avoided.)
Here are my reasons why:
1. No bank would lend against any business plan that could be constructed only out from the information in the franchisor's the item 19's claim and whatever local operational information is also available. (There is, by definition, no local information for a new store.) Remember by FTC and State Policy all the earnings information has to be in the Item 19 statement, except for local store information.
2. If an SBA loan is made then, there has to be "enhanced" earnings report given to the franchisee's bank by the franchisor. There are a number of consultants who will prepare this information, and they appear to be in a difficult conflict of interest being both the franchisor and franchisee's agent. That conflict of interest is unbearable if the consultant gives the enhanced earnings report directly to the bank with minimal franchisee involvement, oversight or review.
3. The current game, though, is that these enhanced earnings reports will be substantially prepared in advance or before closing, but only given to the franchisee in support of their loan application after the franchisee has signed an agreement.
In that agreement, the franchisee agrees that the franchisor did not give them any more earnings information than appeared in the item 19, and if the franchisors did so, then franchisee agrees not to rely upon it - despite the enhanced earnings report being prepared precisely so that the franchisee could get a SBA loan!
"You lie, your listeners know this and you know that they don't believe you...and they also know that you know they don't believe you. Everybody knows everything. The very lie no longer aspires to deceive anyone. From being a means of fooling people it has for some reason turned into an everyday way of life, a customary and obligatory rule for living."
(Oddly, the current state regulators and state AG's find nothing in this practice to investigate despite all the predicate elements of a RICO fraud being in place.)
What is silly and pointless about this game, apparent from bringing a number of people uncomfortably close to a RICO claim, is that it is all a waste of time.
The franchisor should simply include the enhanced earnings report in the item 19 and avoid the entire problem - unless of course the expanded item 19 could not withstand scrutiny, and has to be rushed through in a pro forma manner.
From a game theoretic or strategic point of view, franchisors who do not include in the item 19 these enhanced earnings reports are signalling that these reports are inherently unreliable if given at a future date, after the closing.
The point here is simple. After the closing, there is no legal liability to be found in the disclosure document for the information given after the sale.
It is in the franchisor's strategic interest at that point to be "over enthusiastic" about the quality of future earnings. It will be difficult right after closing for the franchisee to call the franchisor a liar or worse. Bad projections will get accepted by both parties, which is bad for both of them - although much worse for the franchisee.
But the strategic franchisee who knows this can prepare a number of pre-closing responses to avoid being trapped. Waiting until after closing is not a good option, however.
The takeaway for a prospective franchisee is this: if the bank would not lend against a business plan constructed only from the Item 19 information, then any further information from the franchisor is inherently unreliable and dangerous.
The IAFD cannot give you better leaders, but we can provide your future leaders better negotiation training in and mediation with our partnership with Mediation Works Inc.
We recently attended the 2010 Restaurant Finance and Development Conference, and some relevant notes follow:
Takeaways:
More money is theoretically available but the lending standards are much tighter....so practically not much has changed.
Franchisors still have a valuation and debt capacity premium and can borrow more, at less, than even multi-unit franchisees.
With maturing franchisee systems, the "renewal risk" of franchisor systems is becoming more visible.
Associations should document and prepare.
Some "lower tier" operators (recent example Dairy Queen) will have trouble refranchising and finding lenders for franchisees.
Franchisors were promised a detailed "proctological like review'' of their franchise systems.
Big Bank loan underwriting standards are tough and consider everything.
Big Picture:
A lot more franchisors attended. The theme of the conference was---it depends! (financing, brand, valuations, etc).
Talk was that money was available to qualified borrowers (albeit very high standards), but many audience members didn't buy that.
Macro economic conditions will be difficult in the US for some time.
Loan underwriting standards VERY specific and detailed.
Today's underwriting standards would have prevented many prior years' executed M&A actions from having much in future CAPEX, due to leverage.
Restaurant Finance Availability, Rates, Terms and who Qualifies:
Much more liquidity/$ now present, but now looking for much greater equity (cash) infusion from operators.
Max for senior debt, about 3 times EBITDA at LIBOR plus 350 to 500 bpts; 1.5 X for non-secured & mezzanine debt at12 to 18%.
More capital available but fewer good prospects. Hard to find $ if most/all of system tied up as collateral to another lender.
We examine each brand separately.
Mixed opinion of the classical company versus franchisee mix argument.
Some lenders not hung up on the same store sales increase test but look to see operator is operating as best possible.
Lenders like restaurants that are voracious consumers of CAPEX.
Look for franchisors to undergo extensive due diligence. In evaluating packages, lenders want dependable cash flow and definition of leverage to be clear. Specific concern about franchisor franchisee renewal rates noted (with many franchisees entering retirement zone).
Lenders want fixed cost coverage ratio to be 1.4 times zone (was 1.25).
CIT has survived and GE Capital is back in the market too, but they want big transactions, over $10M EBITDA.
Restaurant M&A Trends
Franchising Specific Notes
Market conditions: lots of competition for deals now versus no demand last year. Investors view restaurants in a bond like relationship--should be low risk, it's a tangible, easily understood business (supposedly).
Not a lot of distressed companies right now, but some coming. 90% of transactions from private equity, 10% strategic purchases.
The numbers: One advisor is looking at franchisors at 9.5 times (X) EBITDA, casual dining at 7 X, upper end/fine dining at 7X.
Franchisors have a premium over franchisees since they have a wider geographical area to expand. Typical leverage: 2.5 to 3.0 times EBITDA for senior debt, 1-2 times for mezzanine debt. Distressed company deals must be all equity.
One saw QSR zees at 6-8 X EBITDA without real estate, a bit less for casual dining brands.
There were questions whether the Burger King (BKC) buyout of appx. 9.2 X EBITDA set a new comparable price benchmark. Consensus not.
It depends and it varies by brand: was often cited as the overall rule of thumb. All brands are not the same. The franchising premium (reliable cash flow and less CAPEX) remains.
But franchisors should expect a detailed system diagnosis review of system health and prospects.
A Purchasing co-op is a plus.
One noted franchisor seller expectations were still too high, particularly if real estate was involved.
Remodel economics; noted IHOP refreshes ($50 to $75K) with no sales lift, Pizza Hut $350K remodels at a 10% AUV lift, and a rescrape/redo ($600 to $700k) at a 30-35% AUV lift.
Minimum standards PE firms want; increased equity, operational expertise and legacy financing.
Outstanding or future CAPEX requirements (e.g., rundown restaurants) will affect the price multiple.
Little is not known or examined. Loan standards of all types exist and are tough.
? EBITDA definition: maintenance CAPEX is subtracted from the traditional EBITDA definition. Typically 0- to $50K per unit/year.
? Traditional Funded Debt to EBITDA metric: 2.75 X to 4.50 X
? Lease adjusted: total loans outstanding plus eight times rent expense, to EBITDA: between 5.25 to 5.50 for operators and 5.50 to 5.75 X for franchisees
? Senior and Total Lease adjusted leverage: senior: 4.75 to 5.25X, total leverage 5.25 to 5.75X
? Fixed Charge Coverage ratio: EBITDAR divided by Principal plus Interest: not less than 1.25 to 1.50 times for franchisees.
? Cash EBITDA Standard: EBITDA -cash taxes-maintenance CAPEX divided by Interest plus principal: should be 1.15 to 1.25X
? Capital Spending (CAPEX): per business plan except if lease adjusted leverage ratio is 5.25 or higher, new CAPEX likely limited.
? EBITDA add backs: yes, the lender will listen if there are large non-recurring or extraordinary EBITDA effects.
Generally, focus is on business cash flow before owners compensation.
Private Equity and Restaurants:
Market Conditions; debt is coming back in vogue but still scarce for small companies.
Targets: multimarket successful operation, strong brands, $10M and up EBITDA.
CFOs Panel
The most interesting exchange here was the Chipotle perspective, that they didn't need to do franchising as they had the capital, the people, the expansion plan and the unit economics already in place, while Five Guys noted the US was "sold out" but that they were looking to do 30 company stores and 200 franchisee units next year. Interestingly, Five Guys likes small franchisees, as they feel multi-concept operators won't follow the Five Guys way.
Heartland/BKC noted how reliant they were on the BKC brand and that they were looking to Canadian but no US expansion.
Scouring the P&L for savings:
Budgeting has become more sophisticated, with both internal (stretch) and external forecasts being developed.
Cost savings targets; service provided contract costs, too much outsourcing is not cost effective (internal training), challenging tax assessments, implementing new labor guides via POS technology.
Marketing: direct mail, elimination of low volume menu offerings, sees social networking as high marketing ROI.
Financial Returns: 30% cash on cash or 3.3 year ROI still best in class standard, but franchisees were in the high teens. 5 year return or 20% cash on cash seen as realistic.
what Washington is saying to th public, and what is
happening on the ground regarding small business loans.
"The bank examination climate today is perhaps the most severe in two generations at least," says Cam Fine, CEO of Independent Community Bankers of America (ICBA).
"It's like a reign of terror, particularly on the community banks," which serve a disproportionate number of small firms.
In public statements and interviews, regulators say they've repeatedly told their examiners to encourage banks to lend to creditworthy borrowers.
Examiners, they say, are generally fair, affording bankers ample leeway to make their own judgments.
Yet, officials acknowledge that examiners are more vigilant in light of the lax credit standards that triggered steep downturns in housing and commercial real estate and a continuing rise in the number of loan defaults and bank failures. Since early 2009, 177 banks have shut down, and more than 700 are on the FDIC's "problem bank" list.
Commercial real estate -- which makes up nearly a third of community banks' loan portfolios -- continues to be plagued by rising vacancies and plummeting value.
Still, officials concede, examiners may go too far sometimes.
All instances of fraud should be reported to IG immediately. Contact the OIG hotline at 1-800-767-0385 or
