Episode #29


A Deep Dive into Financing a Franchise with Geoff Seiber

Financing a franchise is one of the things you need to consider early on in the purchasing process. Finding sufficient funds is daunting and complicated—unless you have the right people guiding you through the process. This is where something like FranFund comes into play. Geoff Seiber from FranFund is here to walk us through the options available in this episode of Franchise Secrets.

Geoff Seiber has worked in franchising his entire life. He started from the ground up, working his way from delivery driver to a franchisee with Dominoes. He also helped build the Great Clips Empire. Geoff co-founded FranChoice with Jeff Elgin twenty years ago and is now the CEO of FranFund. Listen as Geoff and I take a deep-dive into the world of lending.

Outline of This Episode

  • [1:55] Geoff Seiber’s Story
  • [3:40] From pizza delivery to a franchisee
  • [7:55] The state of lending and franchising
  • [11:35] What is high-risk lending?
  • [14:15] Working with FranFund vs. a bank
  • [18:15] A word of Caution about banks
  • [19:55] The nuances of the SBA
  • [21:50] A loan approval is not a done deal
  • [25:25] Life-curve in buying a franchise
  • [27:40] The complexity of the 401k
  • [33:00] Final words of wisdom

The politics involved in the financing world

When elections come around, the banking industry tends to feel some anxiety. Every time a new person with a new platform is elected to office, it could mean significant change—positive or negative. The Obama administration was headed towards more stringent regulations with the Small Business Administration (SBA).

The Trump administration has eased off on some of those regulations that fell under the “excess paperwork” realm. Geoff believes they are holding banks to higher standards and keeping them accountable. If you aren’t immersed in the world of banking and financing you’re not necessarily going to be aware of the impact electing Democrats or Republicans have on the process.

If you’re not familiar with the SBA, they’re a sort of “insurance policy” for banks. If a bank takes on a loan, follows all of the rules and guidelines, but the loan defaults: the SBA will cover up to 75% of that loss.

What falls into the category of high-risk lending?

There are a lot of factors that can throw you into the “high-risk” category for lending. Some of the things taken into account:

Is it their first franchise?

Is there prior experience in franchising?

What business are they buying?

What is the age of the franchisor?

What does the competition look like in the industry?

If you’re brand new to franchising, have very little experience, and are young you are automatically branded as high-risk. It’s how the game works. As entrepreneurs, we are used to betting on ourselves and taking a risk. But a lender has to evaluate the risk differently, and choose whether or not they think you will be successful. Keep listening as Geoff and I dissect other factors and risk associated.

FranFund Financing vs. a traditional bank

So what makes FranFund different? Geoff points out that you can secure an SBA loan through many banks, but you need to find one that has experience with high-risk lending. Many aren’t necessarily willing to take on that risk—or say they will to obtain your business, but the end result is wasted time and no loan.

On the flip-side, if you work with FranFund they understand the nature of the industry. Banks are fickle. Some won’t work with start-ups. Others only work with certain franchise industries or will turn you down to keep their portfolio balance. FranFund helps you find the right bank, is familiar with their portfolios and works to help the lender gain a balanced portfolio, by working with you.

Geoff wants you to know that you are bankable. Don’t give up. To hear how else FranFund can help entrepreneurs, keep listening for details!

A loan approval doesn’t equal a done deal

Did you know that a loan approval doesn’t mean everything is a done deal? You need a signed lease and proof that the collateral is assigned properly to access the SBA funds. The franchise fee you pay can go towards the money you put down for the SBA loan.

The more money you put in, the more you lower the risk curve.

Geoff notes that a good rule of thumb is a 30% equity injection—but the more you can put down the better. In order to use any of that capital in the business, your lease has to be executed. They need to know where their money is going, after all.

Geoff and I cover using a 401K to fund your business and he leaves some final words of wisdom. Be sure to listen to the whole episode if you’re ready to finance your franchise!

Resources & People Mentioned

Connect with Geoff Seiber

Connect With Erik

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