What to Consider in a Refinance

By Rick Ormsby
Managing Director
[email protected]

Getting a loan is more complicated than it used to be and not just on the front-end. Compliance and reporting are issues that many franchisees also lament. That said, if you are looking to finance or refinance your franchise business, below are some items to consider:

  1. Interest rates – typically measured by 90 Day LIBOR plus 200 – 400 basis points. That means 3.0 -5.0% or so (reference is early 2017 as LIBOR at that time is about 1%).
  2. Fixed vs. floating vs. a mix of the two. This is largely determined by the size of the loan. It is more likely that larger loans have a floating component, as banks don’t want to take too much interest rate risk in a rising rate environment.
  3. Term – Larger loans have a term of 5-7 years. This likely means that you have to refinance your business several times over your lifetime. In a rising interest rate environment, it is a good idea to be considering a refinance now if you have an expiring term in the next several years.
  4. Amortization – a bank typically offers a 10-year amortization for loans without real estate and 20 years with real estate.
  5. What fees are associated with a loan? What is your personal guarantee (if any) and for how long?
  6. Covenants – fixed charge coverage ratios and lease-adjusted leverage. These can be negotiable and are absolutely important to understand and address before closing on a loan.
  7. Development Lines of Credit (DLOC) – for any franchisee in need of capital for new unit growth or remodeling, this is an important consideration. The costs, terms and approvals required are vital in choosing the right lender.
  8. Lastly, who can you have a relationship with? Unlike many people in my generation, I actually value relationships, all things equal. If you have a good relationship with a lender who is eager to help, easy to reach and innovative in their approach, then that should not be forgotten.

At Unbridled Capital, our team has dedicated resources in helping franchisees of all sizes to find the best terms for financing their companies. Why would you need this service?

  1. Shopping your loans to 20-40 lenders is a very time-consuming process. You are running your business, right? Last I checked, that alone takes 70-80 hours each week.
  2. Creating competition for loans results in much more favorable rates, terms, fees and covenants.
  3. We are typically effective at helping in the minimization of personal guarantees.
  4. Development lines of credit are a material consideration when considering new unit growth and remodeling, and we can help.

We would be honored to talk with you about our process in placing franchise debt. Call us anytime!

Rick Ormsby
Managing Director
[email protected]