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Finance Tips for Multibranding
January 2006
 Expansion often is a next logical step after a first franchise succeeds. One strategy is to build a track record and
equity, then expand to a multibrand portfolio.
Reginald Heard, national account manager, business development, CIT Small Business Lending, a Livingston, N.J.-based subsidiary of CIT Group, offers these tips for franchisees looking to add a new restaurant concept:
- Make sure the franchise has a track record. Aggressive new brands may have more flexible requirements that allow you to diversify into a new sector or move into a more complex operation. Established brands carry more weight. But lenders still may take a serious look at a younger brand as long as it has 20 units open, has been operating for one year and has demonstrated earnings strength.
- Go back to your original lender. You already have an established performance history and repayment capability. Leverage the bottom line to negotiate for better terms.
- Recapitalize your first franchise as soon as possible. Lenders want to see substantial equity going back into the business, not just profit-taking. They also will require an equity injection for the new franchise. By recapitalizing, you should be better able to meet their equity requirements.
- Obtain franchisor approval before applying for a loan. Most large franchisors have established relationships with national lenders. Getting the deal done is easier when dealing with
institutions that understand the franchise business.
- Consider the Small Business Administration and banks that do SBA-approved loans. Not only do you get longer terms, typically up to 10 years on leased locations and 25 years on owned real estate (vs. conventional loans of five to seven years with 15- to 20-year amortization), you also can finance “soft costs” such as franchise fees.
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