Funding Secrets Every Franchisor & Broker Should Know

Episode Transcript
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Lance Hood (FranPro) (00:00):
Hi everyone.
Today we have Dan Pace, thefounder of First Financial Dan,
welcome to the call.

Dan Pace (First Financial (00:07):
Lance , pleasure as always to chat
with you.
Thank you for having me.

Well, on this call, I really want to get
some of your insights thatyou've learned over the years
and maybe definitely someactionable steps that people can
take to utilize this.
You have a background in notonly being a business owner, but
you have a background in all ofthis and you help people with
funding.
What do you think on this callwould be one of the most

(00:35):
valuable things that we couldtalk about to start the call.

Dan Pace (First Financial) (00:40):
Well , there's so many topics out
there, but if we're speakingabout a potential franchisee
dealing with the franchise or Ithink the key there is they have
to take the time, lance, to behonest, and do their due
diligence stage and find theright franchise that fits their

(01:05):
passion.
I see a lot of people who arejust out there and they go well,
gee, this kind of thing ismaking money and this kind of
thing is making money, but Idon't like it.
I think it's taking a valuablestep.
I know when I first did mine, Iknew what my passion was.

(01:28):
When I opened my firstfranchise, it was fitness
industry.
I loved it.
I loved to work out, I lovedthe fact that I could make money
and I hate to say it, but backthen I was younger I used to get
to meet girls too, all in onespot.
To me, that was a win-win typeof business they have.
I think people have to put thatsame expectation minus the

(01:52):
women, obviously.
But you got to do it.
I love what I do now.
I know you love what you doright now.
It's no different from anybodyelse.
You have to engage with numerousfranchises and find the one
that's going to work best foryou because you're building your

(02:15):
own brand.
It might be a franchise, yes,but it's your franchise, it's
your territory and you'rebuilding that brand.
So find the right one, be proudof the one that you pick and go
make it happen for yourself.
I see too many people thatdon't.

(02:36):
Oh, I want to be absentee or Iwant to be this, I don't know.
But you have to get to whereyou want to be.
I provide the financing.
But if I'm talking to a clientand you're saying to me I like
this, I'm not really 100% sold,but it looks good, so I think

(02:57):
I'm going to do it that kind ofgives me an unhappy, unfuzzy
feeling as a lending partner.
I kind of look at it and say,well, maybe you might want to go
back to the table.
So it's a hard thing forconsultants and coaches to have
to deal with and find it, but Ireally believe that's the key

(03:19):
Find something that you're goingto be passionate about and
build it Right.

Yeah, absolutely.
I mean, my first call withpeople is generally about an
hour and it's really openingtheir mind up to what's
available and then narrowing itback down to what makes sense
for them according to them, onall the factors what they like,
what they can afford, just theaspects of the business and all

(03:45):
that.
So otherwise they're not goingto stick.
If you just show people stuffthat they really aren't, you
haven't dialed it in to where ithits all their passions and
they're excited.
It's easy for them to walk away.
So you definitely have to findstuff that meets what they
already believe they want.
And money seems to be important.

(04:07):
But what I have found is ifpeople that just lead with money
rarely close because they'rejust flipping rocks and curious
and there's always somethingelse that could make more money.
So it's hard to satisfy that.
On the other side, if somebodyis like it has to be my life

(04:28):
purpose, those people don'tclose it.

I understand what you're saying
without yeah.

It's like what you said it's right in that
middle, finding somethingthey're passionate about, that
works for them, but not playingto the far, far extremes.

Yes, and we can laugh about it.
But I'm sure you see it, I knowI see it frequently.
You can tell when a person ispassionate about what they're
looking to do compared tosomeone who I call them tire
kickers.
Okay, I got this one, and thennext week they call me and say

(05:09):
well, look at this one, I thinkI want this one now and I know
this one.
I try to do the best I can.
Like I said, my goal is thefinancing side.
I have to flip it back to you,lance, when it comes to maybe
you need to speak the Lance andhe can run over the different

(05:30):
things with you on the franchiseside.
That's why we're a team.
You have me for the financing,I have you when you send your
clients to find them to writefranchise.
I'm not a franchise guy, I'm a.
I volume them, but I don't knowwhich brand is better than the

(05:51):
other brand you know for clients.
So I rely a lot on you to do it.
But you are right, it's atopsy-turvy thing that we deal
with every day.

What would you suggest?
How can potential borrowersbecome more fundable?
Like so talking to a borrower,but also, you know, maybe you
have a broker or a franchise orthat needs to give them some
advice too, Like, what can theydo?

Well , that's a good question.
I think you're the first personthat's ever asked me that I'm a
little taken back by it.
I'm just it's to be morefundable.
That question to me means iswhat does this client look like

(06:41):
on paper for a lender, a bank,whatever it may be SBA,
conventional, and I think it hasto be a person that, at least
for me, I'll speak for me.
At my lending institutions welook for stability.
I want to see a stable person.

(07:05):
I'm not saying so much abouttheir net worth, their liquidity
.
Is that person stable?
Have they lived in the samearea for a few years?
Has it been a person that'smoving from one apartment to
another apartment, to another,one state to another state?
You know, stability is one of mybiggest things.

(07:29):
When I'm looking at that andwhen I look at somebody's credit
report, obviously you can seethe stability.
Now, do I want them to paytheir bills on time?
Certainly I do.
But credit worthiness and longworthiness depends on multiple
factors and it's not alwaysbased off of the individual

(07:51):
client.
You could bring me a clientthat is stellar and let's say he
wants to buy a resale or it's astartup business, and I look at
our portfolio and it's notperforming, I'm not going to do
it.
If I look in there and I see,jeez, I got 20 out of 100 loans

(08:14):
that we have, we got 20 of themthat have defaulted.
I don't care if he's got thebest credit and net worth in the
world, we're not going to buyit just because of default.
So it's a multitask question.
When you bring that to the table, the ideal candidate is someone

(08:35):
with stability, someone thathas a little liquidity to invest
of their own let's call it skinin the game.
Somebody who has been aroundthe work environment, not
necessarily owning their ownbusiness, but knowing how to

(08:57):
operate a business.
Someone who's married or notmarried, but has outside income.
There's all of these differentfactors that we put in to every
potential client that we look at.
That's the reason for thepre-qualification process that

(09:18):
I've talked to you about in thepast.
Why would you have a clientlook at a business that's a
million dollars or a half amillion dollars all in, not
knowing that they would qualifyfor that, for a loan, if they
need it?
That pre-qual is how I adjustfor that.

(09:39):
I can qualify somebody withinfour to five hours of getting
the information that they giveus so I can come back to Lance
and say, okay, lance, and talkto the client and say this is
what I'm comfortable to do, thisis how much I'm willing to give
you.
This is how much doubt I want.
This is your interest, right?
This is your term, and thentake a step back and let you

(10:04):
guys do what you're supposed todo.
That's why I was taken backabout the question, because it's
hard to to tell somebody whatthey have to look like.
I have to see what you looklike and from that point I can
tell you this.

(10:24):
I can say you're not gonna getalong by yourself.
You might need to bring in apartner.
Or I could say you're havingthis issue.
You know there's a credit issue.
Maybe you should talk to ourcredit advocate guys and get
that cleared up, and then youwould be fine.
So there's multiple things.
You got a lack of collateral,you don't have enough net worth.

(10:48):
It could be multiple reasons.
Or I could look at it and sayyou're perfect, this is what we
wanna do.
This is how we move forward.
Every person deserves their ownlook through, whatever lender
they're at.
Okay, everybody's story isdifferent and you have to take

(11:12):
the time and look at their story.
Okay, I could give you hundredsof examples of things that I
run through.
One of my biggest is alwayswhen somebody lives talking to.
A client now lives in the stateof Washington and he's moving
to Ohio.
He's moving and packing hisfamily up cross country and I

(11:34):
gotta figure out before he doesthat.
Or we're gonna be willing togive him a loan, but he leaves
point A to get the point B.
So everybody's story isdifferent and my staff, I, we
all know that you have to lookat everybody individually.
That's how you can tell ifthey're ready to move forward.

(11:57):
It isn't.
I suggest to anybody theyshould speak to multiple people
about financing.
You're gonna bring up aquestion in a little bit and
we'll talk about that.
But it doesn't hurt to talk toyour local bank and see what
they say.
It doesn't hurt to go out andtalk to multiple banks as long

(12:20):
as they're not pulling yourcredit and shopping your loan
around, as bankers call it.
But if you've got the rightlending partner, they're gonna
know the answers once you starttalking to them.
I can tell from a client withinfive minutes on the phone are
they really serious about doingthis, do they?

(12:41):
You know what do you.
You know what do I thinkthey're gonna want and what are
they gonna expect.
So that easiest way is it's achallenging question for people
because everybody's different,lance, and I answered exactly
the way you wanted me to, butit's not an easy question to be
able to say it's A and B, it's Ato B or B to C, it's A to God

(13:09):
knows what.
To figure it out.

So after you first speak with them and
you kind of get a good look atit, that's where your
pre-qualification comes in andgives them a good idea of here's
where you're at, here's whatyou could possibly do and here's
some suggestions on how tobring that up.

Yes, I get.
I mean most of the consultantsand coaches and zores that we
work with.
They all send us clients viaemail or however.
They do it through theirportals and the main thing you
see at the bottom is can youplease pre-qualify this client
before we start our process?

(13:47):
So think about it realistically.
A franchisor doesn't wannaspend a month talking to a
client about purchasing theirfranchise and not know if
they're gonna qualify topurchase it.
A consultant or coach shouldn'tspend months and months talking
to a client, shouldn't evenspend weeks talking to a client

(14:09):
unless they know they're gonnaqualify for some type of some
type of financing if they needfinancing.
If someone says to you you know, I'm good, I don't need
financing, I'm gonna sell fun,then that's wonderful.
There's no need for me to talkto them.
But that's all case by case.

(14:29):
After you speak to them and ifthey need the financing, you
reform and then I handle it andthen I pre-qualify them and then
you know the franchisors know.
So it's really just a step bystep process.

That makes sense.
And so what is the difference?
I mean, you talked aboutworking with someone like
yourself.
That's really, I think you kindof see.
I think you kind of specializein franchises.
You do a lot of things, but youknow what you're talking about
when it comes to that.
Or you know your traditionalretail bank, because when I
first got started, I thought youknow a bank's a bank and the
bank they're always superfriendly.

(15:07):
They're like, yeah, absolutely,we can do that for you.
You know, we can get you theloan.
We're gonna introduce you toMike and Mike's like, yeah, sit
down and talk.
And then it's usually theperson above them that they talk
to and they're like, oh, yeah,we can't do that.
Or we've done a franchise, likewe've done one, you know.
And so what for you know, forpeople who are listening, and

(15:32):
then we're gonna focus mostly onthings that I think that the
brokers and the franchise ownerswould wanna know.
But if somebody's new to thisand they don't understand that
it's important to connect peoplewith a franchise, specific
lender.

Yes.
Well, you have to understandlending institutions are all set
up differently.
I don't care if it's the bigboys, the Chase, the Wells, the
cities or the smaller citizens,or US banks or whoever it may be
.
Whatever the lending itcompanies like ours, you know

(16:07):
everybody has a differentappetite for the type of
business that they want.
But where the issue comes in ismost banks are retail banks.
They care about the FDIC, theycare about your checking account
business.
They want you to get creditcards with them, do car loans,
get your mortgage.
That's retail banking.

(16:30):
I have to admit that's somethingthat I did not spend a lot of
time in in my career because Iwasn't interested.
I wasn't interested in sittingin a brick and mortar building
all day long waiting for clientsto come in and ask for a loan.
But when you go to these localinstitutions or even your own

(16:51):
bank, 99.9% of the time theydon't even have a rep inside the
bank.
For the company that knowsanything about business loans I
don't care if it's conventionalor SBA, it's all outside of the
office and I don't know if it'sthe big boys.

(17:11):
The person you're talking to isjust a yeser.
Yes, I will find out for you.
Yes, I will do this, but by nomeans should somebody take going
to their own bank, where theyhave their deposits and been
banking for years and pay offtheir mortgages and think that
if they decline me I can't getalong somewhere else, because

(17:35):
that can't be farther from thetruth.
I have done multiple, multiple,multiple clients who have went
to their own bank and then came.
Thus the difference between alender like ourselves that
really is more of a wholesale Inthe banking world it's called

(17:56):
wholesale.
We only deal and there arequite a few banks out there that
only, or lending institutionsthat only deal with loans, loan
origination, it's called, and we, specifically, we do mom and
pops, don't get me wrong, butmost of our business is from

(18:21):
coaches and from franchiseowners.
So obviously we understand thefranchise world, so I can find
things out relatively quicklyand if it fits and you're
financially strong enough,there's no reason not to do a
startup business for somebody,especially under SBA.

(18:42):
Let's be honest, the SBA wasdesigned for startup businesses.
That's what put it in placewhen Dwight D Eisenhower was
president in 1953.
They did that to stir theeconomy for entrepreneurial
people.
This is small business week andwe're having this meeting, so

(19:02):
that's a wonderful thing.
But there's no reason to thinkthat you can't get along if you
talk to the right people.
There's multiple companies.
I'm not here to just plug firstfinancial.
I'm here to say if you're anentrepreneur, you have to do
your research.
You got to find out what you'reinterested in and then you

(19:28):
reach out and then you talk toLance, like you, you know us, so
you refer people to KarenPerkins in my office, who you
work with.
That type.
That's how you move forward.
It doesn't cost you anything totalk right and we teach you

(19:48):
what it has to be.
And so I don't want people tothink that going to their local
bank is a bad thing.
It isn't.
Maybe they won't do you alonefor you, but most banks are not
in the startup business.
For startup franchises.

(20:09):
They're just not Maybe resalesome of them we'll look at but a
majority of them will come inand they'll say, well, if you
have equity in your home, we'llloan you against your home and
you can go open the businessType of philosophy, because
that's what they're geared to do.
That's retail type of banking.

(20:30):
Or we'll give you a personalloan.
There are that type of stuff.
Once again is retail.
So I think that's the bigstepping point for people.
Just because you might get theclient once doesn't mean you
cannot get a loan.
You have to talk to the rightfolks.

Right, and so for a franchise sore.
So I own a franchise and I wantpeople to be able to be funded
to buy my franchise.
In the eyes of the lenders andin the eyes of the SBA, what are
some things that make meattractive to be funded for
these loans?

(21:08):
So what should franchise oresunderstand?

Okay , that's a very good question.
I try to explain it a lot tofranchise ores.
There's been some changes,especially in the SBA side.
We used to have a thing calledthe registry and then they
changed it to the directory andwhat that means is every year if
you want the franchise or wantsto be approved for the SBA for

(21:36):
us to write loans under SBA, youhad to be on that directory.
Okay, that means that everyyear you had to send your FDN to
the SBA out of California isthe legal department that runs
that and then you prove yourfranchise and they enter you on

(21:56):
the directory list.
That list is going away.
To be perfectly honest, somebankers don't care, some do.
I'm a carer.
I think the directory was awonderful tool because what it
did was it allowed the SBA tovet the franchise or and make

(22:20):
sure that their FDNs werefocused on the client, what it
was gonna be, and if there wassomething in there they didn't
like, they could talk to themand change it.
Well, as of May 12th, that willnot be in place.
Everybody's kind of protestingit a little bit.

(22:40):
From what I understand, it'sgonna be null.
Now there's quite a fewfranchises that are on the
directory there's over 4,000franchises.
A lot of guys have re-oppedbecause it makes it easier for
lenders to say, okay, they're onthe directory, we can look at
the reports, we can get theirFDN, we can check the Coleman

(23:03):
report, we can see all thesethings.
It's going to change things alot, in my opinion, because now
lenders are gonna have to havetheir own department to review
FDNs and it's gonna be a littlesticky in the beginning.
I don't see any problem withthe existing guys that have been

(23:26):
out there, that have been onthe directory for a year, two
years, 10 years.
Where I do see an issue is theemerging brands.
We're definitely gonna have tospend more time.
I have sent every emerging brandI know that I've spoken to, to
the SBA just to get on thisdirectory, even though it's

(23:47):
gonna disappear because now weknow it's there.
But I see that process might bea little more difficult for the
franchise award.
So they're going to have tospend time with the lending
companies that they choose towork with and be vetted by the
lender.
So in other words, I'm doing acouple of emerging brands or

(24:10):
guys I've known for yearsstarted their own franchise.
Is kind of what you just saidto me.
I've already vetted the FDNs.
I've already had our head ofcredit review the FDNs, so we're
good to go.
But that's a process that takestime.
Lance, I'm sure you've lookedat FDNs.
They're not two or three pages.
There are some cases 250 to 500pages of documents that you

(24:35):
have to go through.
But it's a process.
It's gonna take a little bit.
Franchisors are gonna have torelax a little bit.
For people, the emerging brands, all the other guys we
shouldn't see any issues becausewe still can get reports on how
they're performing.
My bank, we put a lot of effortinto the financial disclosure

(24:59):
documents.
Anyhow, I don't necessarily goby the directory, but the reason
the directory was there was sowe knew that they were approved
with the SBA so we would be ableto file our guarantee.
Sba loans get a guarantee backfrom the federal government and

(25:20):
if they weren't on the directoryyou didn't get the guarantee,
you couldn't write the loanunder SBA.
Now all that's gonna disappearbecause there's no directory.
So it's gonna open up themarketplace with a lot of
franchisors that didn't qualifyto get on the directory.
I kind of wanna say in a kindway, the first few months I

(25:46):
would say June, july and Augustare gonna be like the old West.
You're gonna see a lot offranchises want to get financing
that didn't qualify for onereason or another.
There's a lot of differentreasons.
It doesn't mean that thefranchisor is a bad franchisor.
It just means one of theirpolicies didn't fit under the

(26:09):
SBA guideline program.
Like they take the moneyupfront and then get paid to
franchisee.
There's all different rulesthat these people had to stay
under for SBA.
That's disappearing, so lendersare gonna have to take their
time.
We're already prepared for it.
I mean, I've gotten so manyFDDs in to look at.

(26:32):
We started a whole new filingsystem in our share files for
FDDs, but the Mr Franchisor hasto be aware of that and, other
than that, it's them followingtheir game plan.
This is how you guys have itset up.
We're still relying.
The reason most lenders likefranchises if you're really into

(26:56):
lending is because we put a lotof faith in the franchisors.
You're buying a franchise why?
Because the franchiseeer or isthere to assist you, right,
lance?
I mean that's what you'repaying that money for.
They have a marketingdepartment.
They have all different kindsof departments to help you grow

(27:16):
your brand, and that's just theway it is right now and we enjoy
that and other places.
Just don't understand it.

That makes sense.
I just want to check in withyou really quick.
How much time do we have?

I have as much time as you need.
Ok, because, yeah, these aregreat answers and I just had a
few more questions, that's fine,I can't go on a little bit, but
the questions you're askinghave a lot of explanations to
them yeah, this is great, thisis great, my pleasure.

So what are some big mistakes that you
see that maybe franchiseeers dothat hold their business back,
like if they would make somechanges, their business could
take off OK.

I hate to speak for the
franchiseeers, but I can tellyou on the lender side of things
that we don't like.
One of my pet peeves is thatyou're selling multi-territories
to people that really don'tqualify for a multi-territory
deal.
Second on that multi-territoryis they're not giving them

(28:38):
enough time to open up location2 from location 1 or location 2
from location 3 or whatever itmay be.
I see that happening a lot.
Now I'm not tellingfranchiseeers not to sell.
They call them two packs, threepacks, five packs.
I don't have any issues withthat.

(28:58):
Everybody's in business to makemoney.
Where I have the issue is ifthe client physically is not
going to qualify to be able toopen two or three of these
locations.
And then it really comes backto that other example of how
long does my franchisee have toopen up the next.

(29:20):
Banks are banks, lenders arelenders.
If I loan you $400, I'm justpicking a number $400,000 to
open up location 1, or $500 or amillion, whatever it may be,
and you get it up and running,takes you six, seven months to
get it built out, done andyou're ready to go.
And You're just barely makingmoney now because you just

(29:45):
opened and four months down theroad you're still having.
You're not cash flow positiveyet.
Now you have to go out and openup a second location.
We're not going to want to loanyou the money.
Why would we loan you money?
Why would you open up a secondlocation when the first one
isn't cash flow positive?

(30:05):
Yet If the first one is cashflow positive, by all means I
don't care if it's three monthsor six months or 12 months.
We'll look at doing the secondone.
I want to do every one of them,but the franchisor has to
understand that it comes down tothe people being able to
qualify and what lendingpractices are like out there.

(30:29):
No one's going to loan somebodyon a second location if the
first location isn't at leastbreaking even.
That's a big thing.
That I see.
The other thing that and I don'thave a lot of problems with
franchisors because we work withso many of them I can really

(30:52):
tell them how I feel.
Hey, I don't think this, youshould be doing this.
It doesn't mean they listen,but I say it.
I think the biggest problem toois that they accept people that
probably aren't the rightcandidate for that individual
franchise.
They don't qualify, they're notgoing to get a loan and you

(31:16):
still took them in as afranchise.
I don't see that as much,because most of the groups that
we work with are pretty, very,very good, stable companies with
good people working for them.
There's always one guy thatslips in and you give him a loan

(31:38):
and he wants a loan and he'spaid his franchise fee.
He comes to us and we can'thelp him.
That's something thatfranchisors have to be careful
for and they need to spend moretime, in my opinion, vetting

(31:58):
their clients.
Let's say you get a client, yourefer them over to whatever
franchise he's interested in.
They have their own franchisedirector.
They need to take the time tovet the client and have them get
qualified with them before theyaward them a territory and make

(32:19):
sure that they have thefinancial needs, if they don't
get a loan, that they'd still beable to open and not be
undercapitalized.
That's the effort.
A lot of the franchisors arereally good at that.
Now I've seen this industrychange immensely over the years,

(32:41):
where guys would just sellfranchises to anybody many, many
years ago to where the goodfranchise groups are the ones
that are out there that arereally vetting their clients,
their potential franchises, andthey're out there to make sure
that they're going to besuccessful.
That's what a franchise is.

(33:01):
Remember that FDD has to stateeverything.
Just because the director isgone, the FDDs are still have to
be filed every year.
The worst case for a franchiseor is to have to put that he's
got territories that closed.
It's a reflection on them and areflection for banks when they

(33:25):
look at them to be able tofinance them.
They can walk away.

Yeah, I know that the franchisors say we
don't want to tie up theterritories and this and that,
but I've always felt that someof those progressive opening
plans were just a littleaggressive because of the
startup is when you're theweakest and you're learning.
Just putting a little bit moreslack in there would help

(33:51):
everybody.
It would help the franchise orin the franchise, people do what
they feel is right, but I thinkthey would have greater success
.

They know their model, Lance, and
they feel, because they probablyaccomplished it themselves,
that everybody can.
But it really depends on thedemographic area you are.
Let's be honest.
You can open up one and it's acash flow cow from the day one
you open it.
Then you go to another one, butthe area is not as good as the
other one was and this onedoesn't support it.
It's a tough decision forfranchisors, but it all gets

(34:26):
back to exactly what I said Makesure they're financially strong
enough to be able to open upthree days.
If they can't get a loan, Maybethey have money in their
retirement account or maybe theygot a lot of stocks and bonds.
If it's $250,000 to open upeach project, make sure they
qualify for it.
Make sure they got $750,000 soyou know they can open them up,

(34:49):
Instead of saying down the roadoh, maybe we can get you this
loan or maybe you can get alease.
That's not how it should bedone.
You shouldn't buy a business onmaybe.

Right.
Well, what have you noticedabout franchise companies?
This can be the company itselfas an opportunity or the company
as the product to the consumer.
What have you noticed aboutthese companies, on the ones
that really took off and succeed?
What is it about them?

Dan Pace (First Financi (35:19):
Another good question.
If you want my absolute truth,I think they have better
marketing departments andthey're out there and they're
pushing the products out infront of the coaches, the
consultants.
They're advertising andpublications, social media, and

(35:39):
they're just getting moreexposure and you're seeing a lot
of I guess I would say the wordrepeat brands.
Give me an example when I firststarted in this, there was one
mosquito company out there.
There's probably 27 differentfranchises now that are pest

(36:00):
control companies.
So you're seeing somebody thathad a good product and a good
concept on the franchise worldand it's copycat it, which is
fine.
I mean, it's business isbusiness.
I'm still doing them all, but Isee that being that factor and

(36:21):
once again, it's a challengingscenario for people.
It all comes down to findingthat brand that's going to work
for you.
I think that makes sense.

Yeah.

Yeah .

Does Kynan mean retail وتانصIGHT?
Is Kynan a fashion brand?
I was going to say are thereany things that you have noticed
about?
And we talk about item 19, andwe talk about that stuff.
I know that that's importantand I know that some companies
still don't put a good item 19in there or not at all.

(36:56):
What's your recommendationswith that?
Because I think that assomebody looks to buy it, that
is really important to them tohave an understanding of what it
could do.
What's your suggestions fromlooking at all these FDDs over
the years?

This is a little bit now.
Remember this is me, this is mybank, this is a lot of lenders.
We don't really put as mucheffort into the item 19 as the
potential franchisee does.
We're looking at the product asa whole.
We're looking at the franchiseas a whole.

(37:36):
Cash revenues are great.
Don't get me wrong.
It's nice to see that thesefranchises I was on a
presentation today where that'swhat they put up Remember what I
got back to a little bit ago.
It's not always about the money.
It's about the structure of thefranchise and the growth of the

(37:58):
franchise.
The item 19 is based off howmuch money you can make.
I think the reason some of thefranchisors there's quite a few
that don't have an item 19 isbecause they don't have that
information to really publicizeyet.
They don't know exactly whatall their franchisees did.

(38:18):
Because just because you're afranchisee doesn't mean that you
have to submit your financialsto your franchise or to be
published.
Now, yes, you have to give thema report because they're taking
a percentage of your business,whatever it may be 5%, 6%.
The guys I talked to today were8.5%.

(38:41):
That they take of the revenue,of the gross revenues A lot of
the smaller franchises,especially your new ones,
they're not going to have anitem 19.
The only thing they couldreally post is if they have
their own operating business,which is something I like to see
.
On the franchise side, I'm afirm believer that every

(39:03):
franchise had at least onelocation open of their own.
They can justify the numbersfrom that, but a lot don't.
If they don't, then we go backand I go back and I look at
who's running this, who is thefounder of it, who's the
president?
Where did they come from?

(39:24):
Is this their background?
If it is, then it'sunderstandable.
You got to look through allthose things.
But the item 19 is not going todeter most lenders who do
franchise business.

(39:45):
If it's not in there, it mightdeter a franchisee or it might
deter a coach from representingand showing the business,
because you guys like that.
There's not a convention or afranchise meeting that I don't
go to.
When we're doing speakingengagements and so is the Zores

(40:07):
that the first thing they bringup is their item 19.
I'm used to that.
I do think it's a good thingfor the franchisee to see it.
For me I can look at it and sayyes, but I'm really more
concerned about the client, tobe honest with you.

What advice would you then have for
brokers and consultants who areworking with clients and they're
bringing them in for funding?
What are some things you seethat maybe you suggest they do
more of, or some things you'veseen that works really well?
What could we share that wouldreally help the brokers out?

There's a few things there.
On the broker side, I look ateverything as urgency.
I always have and I use ascenario.
You're probably too young tounderstand this, but way back
when I had my franchises, weused to use a product called a
lead box.

(41:10):
We didn't have social mediathat, we didn't have all this
stuff where you can click andhave advice.
We used to have these thingscalled lead boxes and you went a
free two-week membership to myfitness center.
You strategically placed theseall over stores.
Even to this day, karatestudios still use these.

(41:34):
Someone fills out the lead, putstheir name, phone number.
There was no email addressesback.
I'm really telling all of my Idon't like it.
We would go out, my sales staffpick up the leads, go back and
we would call the people andmake appointments.
Day one, if you got the leads,everybody was excited, would

(41:58):
show up, come in and you wouldtry to sell them a gym
membership.
If not, they got two weeks freeto work out.
Day two, they remembered it.
Day three, they didn't evenremember filling it out.
Getting over day three, youmight as well just throw the
lead out because they're notgoing to remember.
They just did it while theywere standing in line.

(42:20):
I use that same scenario andsynopsis when I talk to a coach.
I said if they mentionedfinancing to you, when they're
interested, you shouldautomatically send them over to
me and let me talk to them, orto my staff, the care and Cindy,
you name it.
There's multiple people here.
Let us talk to them and keepthe excitement going, because

(42:46):
the longer you let that personset around, they're gone.
They're going to call anothercoach and another coach, or
they're going to call their ownfranchise, or they're going to
go online to all these sites andI'm not plugging any of those
Look for businesses.
It's keeping them engulfed inwhat we're trying to do.

(43:08):
When I talk to them aboutfinancing, now they're really in
.
That's when that pre-claw comesin, because I explain it to
people.
Let's get you pre-approved.
It costs you no money.
We're not pulling your credit.
We're not doing any of that.
We show them how to doeverything themselves and find

(43:29):
out how much we're willing togive you.
And then you go back and engagewith your consultant and go
find something.
That's the fastest way.
That's the people that do itthat way.
The consultants that refer meto people in my office, those
are the ones that are closing 10, 15 loans a year, believe it or

(43:53):
not, because they're staying ontop of these people and we're
staying on top of them.
That's the biggest thing I cansay to coaches and,
realistically, even people thatmay not be interested in
financing might be.
Once you get to the right thing, once they find a franchise, we

(44:14):
don't need them to know whatfranchise they want yet.
We just want to pre-qualifythem and let you go do what you
do best.
I've already done what I dobest by saying, okay, here's
what we're going to give you,here's the terms.
This is the money down, this isthe interest rate.
Go find what you need, get backthe lands or whoever the person

(44:38):
referred it to them to, and gofind a business Once you find it
.
Now we re-engage again.
Let's start really getting allthe stuff together, be it a
startup, be it a resale,whatever it may be.
That's the key.
Urgency brother is the key,best way to say it.

Right, what would you recommend when
somebody is working with aclient could be a broker, could
be a franchise, could be aconsultant and the client wants
to look at brands, wants to lookat their brand, but they're
just like, hey, I'm not going totalk to a bank until I know I'm
going to do this for sure, or Iknow I have the brand I want.

(45:21):
There's that fear or thathesitation where they're doing a
pushback, but you know theyneed to qualify so that you know
that you can actually findsomething they can afford.
What do you recommend saying topeople in that situation where
they're getting some pushbackfrom a client?

I think the best thing.
A lot of you guys have formsthat you use.
That form is fine.
If someone doesn't want todisclose anything to you, that's
a tough scenario because you'retalking to somebody who you
don't even know is going toqualify for the things that

(46:02):
you're going to spend a month atshowing them.
It's like the real estatephilosophy.
How many real estate agents doyou know that will go out and
show people homes unless theywere pre-qualified already?
That's the first thing they say.
Why would you want to go lookat a million dollar home if you

(46:25):
can only afford to have amillion dollar home?
The people that are leery ofthat.
I would at least have a seriesof questions together as the
consultant that you can ask them.
That's fine.
You don't have to speak to myfinance group now, but can you

(46:45):
give me a little information?
Is your credit okay?
Do you have that amount ofliquidity available?
What's your net worth?
People know the answers to that.
Come on.
Everybody knows how much moneythey have in the bank.
Everybody has an estimate ofwhat their net worth is.
They know if they pay theirbills on time.

(47:08):
Those are basic questions thatyou could ask.
It would get you through untilthey really want to talk to
somebody about financing One ofmy favorite.
When I talk to people, one ofthe things I ask I go if you
ever claim bankruptcy or defaultit on a government loan,

(47:29):
because if I hear that I knowI'm going to have issues.
I eliminate some of that offthe top, but you don't want to
ask them too many questions.
This is, in my opinion, indealing with franchise orders
and coaches for 25 years,anybody who really doesn't want

(47:52):
to disclose what they haveprobably is not going to move
forward anyhow.
Every couple of months they'regoing to call you or they're
already working with three orfour other consultants and don't
even tell you, because I seethat when they do come to me.

(48:13):
Well, this guy showed me thisand this guy showed me that it's
not a comfortable position forme to be in.
But I think it's getting thatgeneral sense of information and
if you don't have a form, youshould create a form and if you
need help, I have forms.

(48:33):
You could even use my forms.
We call it a questionnaire.
It gives you everything on thequestionnaire.
You know are you married, whatwas your income for 2022?
Just basic information thatpeople I would think would know
that you want to know about andI'm not saying this is done on

(48:56):
your first call with them,because I know consultants have
multiple calls, but I would sayby call two you might want to
talk about the financing arenaand say is this project
something that you might need toacquire financing for?
And if they say yes, that'swhen you would say OK, could I

(49:18):
introduce you to one of myfunding partners and there's no
charge, and you could talk tothem and they can explain how
all that process works.
If they say no, say well, wouldyou mind answering a couple
financial questions for me so Iwould have a better idea of what
to find you.
How do you find somebody?

of French, I said, if you don't know what
they can afford, right, yeahit's crazy, although people, I
think, just have this fear of ifI do whatever this thing is,
I'm going to feel obligated andsucked into doing something I
don't want to do.
So they put these walls up.
But it doesn't totally makesense, because you're trying to

(50:01):
help them and you can't totallyhelp them when they do that.

Now you have to put them at ease,
you have to explain, listen,it's just general questions.
They don't even have to puttheir name on it for you, you
know.
I mean, it's just what we'reasking or verbally commit to it.
I do find, even when you guysdo that, what you get from a
client and what I finally getfrom a client, are usually

(50:28):
definitely different.
They're going to tell you somethings, but they have to tell me
everything, or my staffobviously.
When I say it, it's not evenclose to what they told you.
Very few of them are.
In most cases it's a lot morethan what they've told you.
Network wise, liquidity wise,it's very few, is it less?

(50:52):
Every once in a while you get aguy who likes to make stuff up,
but once again that's all partof that prequel.
But I understand your miseryPeople.
To me I tell them listen, ifyou don't want it, we have a
prequalification that costs youno money.
If you're ready to move forward, we'd be more than glad to

(51:13):
share it, send it to you whenyou can upload your information.
I do not disclose anybody'sfinancial information to you.
If you refer the client or tothe franchise or, the only thing
I go to you guys is basicallyand say, ok, he's preapproved,
he's got his letter of interest.
You might want to reach out tohim and that's it.

(51:36):
And that's all you guys reallyneed to know at that point.
That's the way to approach it,but it's it.
There's no easy answer for youguys.
For me there is.
If you're not ready, then whenyou're ready, call me back and
we'll email it to you.

That makes sense.
Last question Sure, any otherred flags that you think that
you know broke consultants,brokers, franchise or should be
aware of when working with aclient like this is a client
that I don't know something'stelling me that they might have
a challenge, they might have lowcredit, they might not be the

(52:14):
kind of person that's going tofollow through on a loan.
You're like, when this happensrarely do I see a loan actually
complete.
These are just not maybe actionitems, but just things to be
aware of and conscious of.

Dan Pace (First Financia (52:25):
Gotcha .
I think credit is probably oneof the biggest ones, lance.
A lot of people really don'tknow their credit.
I know that sounds strange.
I know mine because it dames meif something's happening with
my credit.
But not everybody out thereknows what their credit is and
not everybody understands whatgood credit and bad credit is.

(52:49):
Okay, just because they see ascore doesn't mean that it's
good credit, doesn't mean it'sbad credit.
They don't know what it means.
There's a ratio out therebetween good and bad credit.
One of the things the creditthing I bring up the most is
because we started a creditrestoration company called Genie

(53:09):
.
One of my best buddies runs it.
He's excellent at it because weget a lot of people and once
they send us their credit report, we see that they're not good
credit and we bring them overand try to get that corrected so
we can move forward with theirloan and it's been a very
successful program.

(53:29):
That's the biggest thing thatthe client doesn't know and you
guys don't know.
It's a hit or miss.
Somebody could have a lot ofmoney and have terrible credit.
You know, or they got divorcedand something happened in the
divorce, or they were laid ontheir mortgage payments.
There's all kinds of things,but credit.

(53:52):
That's one of the facets ofgetting a loan that we have no
control over Virtually none.
It states what they have tohave and if it isn't that,
there's nothing we can do.
You cannot.
What I have done I'm most of mybigger ticket loans.

(54:12):
I do a merger.
So if I have a husband and wifeand the husband is 725 and the
wife is 610, which is not goodcompared to good we merge them
together and divide it by twoand as long as we come up with
680 or above, we're pretty muchgood to go.
Not all lending institutions dothat.

(54:33):
I spoke to a group of guystoday, three partners.
One partner co-signed for hisson on a car and the son never
made the payments on time, sohis credit went from an 800 down
to a 510, which is not good atall.
We took the other partners thatwere in the 800 range, blended

(54:57):
them together and said, okay,we're good to go.
In the meantime he's workingwith our credit restoration
department trying to get some ofthat stuff taken care of.
But credit is a killer.
We cannot change it.
I can figure out a way tosomebody to get a gift letter if
they're a little short on thecash injection.

(55:18):
I can figure out how to workaround collateral if I need it.
I can figure out how to workaround a franchise that might
not be where it should be, butwhen it comes down to that
credit, there's not a lendinginstitution in the country that
can do anything.
You just have to dust that,send in amount to credit.

(55:38):
It's called credit geniebecause he is a genie, I have to
admit.
Shane does a fantastic job andthat's why we also brought in my
franchise CPA, lance, to behonest with you, because people
can't even figure out how to doset up their corporation or how
to get their licenses.
So we have that group withinside us which is all one

(56:01):
umbrella where they help peopledo that.
So but to get back to yourquestion credit is it, credit is
everything.
That's one thing I always askWell, how was your personal
credit?
Have you ever claimedbankruptcy?
Have you ever defaulted onchild support?
You miss your mom?
Oh, no, no, no, no, no.

(56:22):
Okay, we're good.
Oh yeah, I had a short saleright there.
It's a flag.
I know that doesn't mean westill can't do the loan, but we
know they have it.
That's when we start workingthat process.
Okay, we need to put you withour credit people.
Let's talk.
Why don't you talk to them andsee what can be done?
And you keep moving along andmoving along and then eventually

(56:43):
, two months, three months atmax, we get an email from our
credit department that saysthey're good to go Start moving
forward with their loan.
I get back to you and say theircredit's good, now let's go
ahead and move forward.
Boom, it's systematic.

Right, that makes sense as you were
talking.
I just got this panic in theback of my wife Cosine for one
of my daughters.
I see she's made all herpayments on time.

Because you're just a guarantor.
I see it happen quitefrequently.
That woman just recently.
She cosigned for her son's homeand he didn't make his mortgage
payments.
So their credit gets destroyedand you're a guarantor On that
type of stuff.
It's different when you're aguarantor on an SBA loan that's

(57:39):
off the balance sheet accounting.
What that means is, even thoughyou're guaranteeing it, it
never appears on your personalcredit because it's not a
personal loan to you, like amortgage is, or credit card or
your car.
It's a loan to your businessentity that you set up.
That's the big, big difference.
So, yeah, you should check it.

(58:01):
I see it happen a lot it does.
Or people default on theirstudent loans and the parents
cosigned for their student loansand they fell behind on student
loan payments.
That's a big effect when itcomes to SBA, because their

(58:21):
student loans are governmentback loans, just like Fannie Mae
, freddie Mac mortgages.
Those are all government backloans.
If you were laid on agovernment loan, no bank's ever
going to give you anothergovernment loan because the SBA
won't.
Let us do it, obviously.
So I'm sure you're okay, thoughDon't panic.

Well, I appreciate you joining me on
this call today, dan.
You're insightful and wonderfulas always.
Go to the a link next thisvideo, and you can go to that
and check out First Financialand all the amazing resources
they have to help you.
I've worked with them, they'regreat and just thanks again for

(59:12):
joining us.

It's always a pleasure, lance.
Thank you, and I look forwardto our next one.

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