An important article to read discussing the role of small business credit scoring in 2014 and how it will impact business lending.  The figures to play an important role in franchise lending.

The FICO consumer credit score was first introduced in 1989 and is used today by 90% of all consumer lenders when determining loans and interest rates. And although the leading business credit score –FICO’s Small Business Scoring Service or SBSS Score – isn’t new, thanks to an SBA rule change, 2014 is posed to be the year of the small business credit score. This change has powerful implications for lenders and borrowers alike.

Read more:  Small Business Loan Credit Score

It is difficult to get a small-business loan without pledging substantial collateral. Although lenders will look at your cash flow and other financial ratios first, they consider collateral to be the secondary way to get paid if you default.

Mature businesses with a track record of cash flow and a strong banking relationship are sometimes exceptions to lenders requiring collateral. But if collateral is required, real estate is preferred and it is usually discounted at 80 percent of its resale worth. Softer collateral such as fixtures, furnishings and equipment, and single-purpose commercial buildings, get deeper haircuts, or may be unsuitable collateral for some lenders.

Examples of single-purpose buildings include bowling centers and movie theaters, because only similar businesses can move into the buildings without costly renovations. In the event of default by the original users, the new occupants would likely tear out the bowling lanes or level the floors of a movie theater.

Restaurants and fast-food franchises also often occupy single-purpose buildings. Customizing the inside and outside is part of their branding. But in the event of default, it is likely that a new, more traditional retail store would remove facades with golden arches, tubs of chicken or overly customized interiors and elaborate kitchens. So prudent lenders will further discount the collateral by the amount of that renovation cost.

“One of the biggest start-up costs for franchisees is store build-outs,” according to an article in “Franchise Times.”

“One challenge for both franchisors and franchisees is walking a fine line between cutting costs while not cutting corners that will negatively impact the brand.”

In other words, the brand determines how much cost is added to a plain vanilla building so that the store is consistent with its others nationwide. Franchisors want Wendy’s patrons from Massachusetts to easily spot their brand while vacationing in Bradenton or Port Charlotte.

Read more:  Do all small business lenders need collateral?

The Coleman Report conducted a series of interviews with presenting brands and other industry leaders at BoeFly’s Franchise Lending Spotlight Conference in Irvine, CA on July 17, 2013.  See select interviews:

InterContinental

Robek’s

Publisher of Franchise Times

Firehouse Subs

The Coleman Report closely covered the Franchise Lending Spotlight Conference, held on July 17 in Irvine, CA.  Here from BoeFly Co-presidents David Nayor and Mike Rozman, discuss the vision for the conference and how franchise brands are achieving greater growth through aggressive capital access strategies.  Watch the video.

At Boston event, local lenders get a peek at franchise concepts.

“Sometimes banking is stuck in the ‘70s and ‘80s,” said banker Morgan Johns with Conestoga Bank in Pennsylvania. “You have to look outside the box.”  Which is precisely why he attended BoeFly’s Franchise Lending Spotlight Conference, held April 3 in suburban Boston.

Read the full article at FranchiseTimes.com