Franchising in New England

NEFA Announces: Panel Discussion November 18th, Marriott Hotel Quincy

Keys to Financing Success in the Current Economic Climate!

The financial lending crisis has reached Main Street and NEFA is planning a panel discussion for the next NEFA Meeting November 18th, 2008 at the Marriott Hotel in Quincy, to explore the ramifications of the crisis and how to obtains financing for franchisees and franchise systems.

In today’s economy one of the biggest concerns of a franchise system is how and where to get capital for franchisees to start their business or ways for franchisees to keep it running or to finance their growth.

This panel discussion is very valuable for each member of your finance and franchise development team as well as for existing franchisees, or prospective franchisees interested in expansion.

You will learn how banks and other lending organizations evaluate franchisee loan applications, and the types of funding that is available, even in these unsettled financial times.

Panelist

Anne Rice Hunt, Finance Chief, U.S Small Business Administration

Barbara Arena, CIT Small Business Lending, Senior Regional Account Manager

Bill Rowland, Equity America Mortgage Services

Itamar Chalif, Atlantic Capital Solutions

Tom McDonald, IRA Rollover Solutions

Moderated by: Constantine (Dean) Fournaris, Partner, Wiggin and Dana, Franchise and Distribution

Register Today

Sponsored by:

Paul Ziobro of Dow Jones Newswires reports in SmartMoney that GE Capital’s franchise finance arm is becoming more stringent in pricing and issuing loans for new franchisees, a pullback by one of the largest lenders to restaurant operators in the latest sign that Wall Street’s turmoil is spreading to small businesses.

While GE Capital spokesman Stephen White stopped short of saying there was a total freeze on lending to new franchisees, he said the franchise finance arm has become more critical in initiating new loans but continues to do business with existing customers.

“We are still active in the restaurant industry and we continue to quote deals where it’s competitive and appropriate,” White said. “In this environment, we’re taking a longer look and even a closer look than we have in different times and that just makes sense.”

Stephen Vaughan, chief financial officer of Sonic Corp. (SONC), told Dow Jones Newswires Thursday that franchisees of the drive-in chain have been notified by GE Capital’s franchise finance arm that it will temporarily stop financing new loans to Sonic franchisees. GE Capital is one of Sonic’s approved lenders.
Other restaurant industry deal makers have said in recent days that they have been turned away from GE Capital’s franchise lending practice when seeking new loans.

Sharon Zackfia, a restaurant industry analyst, said in an investor note Friday morning that GE Capital has halted new franchisee franchising, although it will continue to honor pre-existing financing agreements.

The action by the financing division of General Electric Co. (GE) is the second major lender to the restaurant industry to pull back this week, following news that Bank of America Corp. (BAC) has declined to increase existing loans to McDonald’s Corp. (MCD) franchisees, whose U.S. base is in the midst of installing equipment for sales of lattes, cappuccinos and other drinks.

Such moves could impede plans by restaurant operators to remodel existing stores, install new equipment, open new locations or convert existing company-owned stores to franchised locations, Zackfia said. She cited Sonic and Panera Bread Co. (PNRA) as two chains with a heavy reliance on franchise growth that could be most affected.

“While clearly other sources exist for franchisee funding options, the recent pullbacks of two of the main lenders in the arena are disconcerting, to say the least,” Zackfia said. GE Capital and Bank of America are two of the largest national lenders to restaurant franchisees and restaurant deals. Other major lenders include Wells Fargo & Co. (WFC) and Wachovia Corp. (WB).

Credit conditions have become tight in the restaurant industry over the last couple of years, as major lenders helped finance a hefty diet of loans backing leveraged buyouts and expansions. “Financing for the larger transactions is not as prevalent as it was a year-and-a-half ago,” said David Epstein, principal at the investment bank J.H. Chapman Group LLC.

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Martin Desmarais of IndUs Business Online authored a Special Report: Education Franchising where he states that the influx of new franchise concepts in all segments of the industry over the past several years has left many franchisors dizzy from trying to keep up with the competition. The franchise education sector has likewise seen its share of new concepts, but the growing demand suggests that there is plenty of room for all and franchisors are worrying less than their counterparts about the competition and focusing on expansion.

Education franchise stalwart Kumon North America, consistently ranked as a top brand in the tutoring category, continues to roll on in North America with more than 1,800 centers and 250,000 students enrolled. Worldwide, there are 4 million students studying at more than 26,000 Kumon Centers in 45 countries.

In the first half of this year, Kumon North America increased its new center openings 37 percent compared to the same period last year with openings in Seattle, Atlanta, New York, New Jersey, Connecticut and Philadelphia, according to the company. Kumon expects to open an additional 68 Kumon centers this year. In the past five years, the average Kumon center enrollment increased 55 percent, and overall, the company has 80,000 more U.S. students than in 2002, the company said.

The Teaneck, N.J.-based Kumon North America attributes its success to its franchisees and employees and their passion for educating children.

“Kumon franchisees often leave the corporate world for a rewarding career to help children and their communities,” Deven Klein, vice president of Kumon franchising, said in a recent statement about the chain’s growth. “Education is vital to a community’s prosperity and Kumon instructors have a strong conviction for improving society through education.”

The Kumon Method of learning was founded 50 years ago in Japan by Toru Kumon, a teacher and parent who wanted to help his son do better in school. Kumon’s belief that every child possesses untapped abilities and the potential to excel remains central to Kumon’s philosophy. Today, Kumon franchisees help students improve their math and reading skills with daily practice and self-paced advancement.

New entrants into the education franchise segment have shown an ability to jump right into the fray and find some success.

The Lexington, Mass.-based Chyten Educational Services, which was started in 1998, but began franchising last year, has already opened half-a-dozen franchise locations to add to its five corporate centers. All current locations are in Massachusetts. Services offered include: standardized test preparation, subject tutoring, application essay writing, educational psychological testing and school partnership programs. All of its tutors are required to have a minimum of a master’s degree and have teaching experience.

According to the company, it will have 25 to 35 franchised locations throughout the United States by the end of 2008.

“In just seven or eight months, we’ll have doubled the size of our company through our franchising program. We’re building on the foundation of the original five centers and the reputation we’ve achieved as the leading provider of tutoring and test prep services in the Commonwealth,” Neil Chyten, founder and chief executive officer of Chyten said in a statement. “Our franchise owners are high quality people who believe in the principles of providing quality educational services to the youth of Massachusetts. We’ve raised the standards in the industry and we’re bringing a new way of educating young people to more and more communities throughout the Commonwealth.”

“This is the most competitive educational environment for high school students applying to college in our history. Students need every advantage they can get to help them get into the college of their choice. We provide very high quality tutorial services, as well as the most unique and successful methods of helping them raise their SAT and ACT scores,” he added. “Now, as we expand, we’ll be able to help even more students throughout Massachusetts achieve their goals of getting accepted into the college they most want to attend. We’re proud of what we do, and we’re particularly proud to be able to help more and more students as we continue our expansion.”

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In Nancy Weingartner’s feature article in the September issue of Franchise Times she writes that NFL Player Lorenzo Neal has purchase an Athletic Nation franchise.

It was during a conversation with Dennis Mulgannon, NEFA Member and founder of Athletic Nation, a men’s personal training center, on finding a fit for his nutritional line that Neal realized the gym concept also might be a fit. Neal was positioning his company, Power Nutrition, to become one of the concept’s vendors. Instead, he decided to become one of the investors in the men’s-only gym.

Athletic Nation is a no-nonsense, no-frills gym, where out-of-shape, professional men can work out one-on-one with a trainer to get back to their high school athletic body, Mulgannon says. It’s an intense training, where results come quickly, he says, and is based on the program Mulgannon developed to get himself back into shape following the stress  of a divorce, a tanking tech market  and a health scare.

“Dennis is a good man,” Neal says. “There’s guys I know I would push this product to…It’s a great concept for retired players,” who are used to working out daily.

Franchising always has been an option for retired players, but now it’s being organized and packaged. Eric Eisenberg of Iron Mountain Sports, who manages a number of athletes, teamed up with Mario Altiery, president of Upside Group Franchise Consulting, to present an informational seminar to professional athletes in June at the Bellagio Resort in Las Vegas. A number of Eisenberg’s clients were already involved in franchising, but Eisenberg believed they needed professional advice on how to evaluate all the offerings out there. Sixty-seven retired and active athletes, almost all from the NFL, met with 32 different concepts. Franchisors paid $6,000 to present and then meet one-on-one with the players, according to promotional materials.

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This information was submitted by Barbara Arena of CIT Small Business Lending.

Senate bill S.2920 is to authorize and improve the financing and entrepreneurial development programs of the Small Business Administration, and for other programs was introduced in April and added to the congressional calendar, where is sits…  Contact your Congressional representative to get this moving!

Highlights include:

· Reauthorizes programs for FY2008-FY2010

· Maximum 7(a) loan would increase to $3,000,000 {with maximum guaranty of $2,250,000 (75%)}

· 7(a) and 504 loan program maximums would be available to a qualified borrower (meeting eligibility requirements of each program) under each program. (Maximum 7a would increase to $3,000,000; 504 remains unchanged – up to $4 million depending upon business)

· Alternative Size Standard definition:  7(a) loans may use tangible net worth (< $8 million) and net profit after tax (< $3 million) definitions (reserved for 504 loans) as an alternative to the 3-year revenue or # of employee definitions currently used to meet the “small business” size standard.

Click here to access FULL pdf version (warning a 214 page document)

As the SBA’s fiscal year end winds down on September 30, NEFA Member CIT Small Business Lending is positioned to maintain its stronghold as the largest lender by dollar in the country.  We have also been the top lender to women, minorities, and veteran entrepreneurs for the past 5 years and hope to continue this streak!

In these turbulent economic times, CIT strives to maintain access to capital for small businesses.  CIT is actively lending under the newly revamped SOP.  CIT specializes in loans for commercial real estate (owner occupied), professional practice financing, franchise financing as well as business acquisition and succession financing. Please contact Barbara Arena (Barbara.Arena@cit.com) for all your financing needs. 

Today’s career women are continually challenged by the demands of full-time work and the responsibilities and commitments at home. Fantastic Sams Hair Salons, NEFA Member and the nation’s largest full service hair salon brand, has a unique business model that allows women entrepreneurs to successfully achieve work/life balance.

Ranked as one of Entrepreneur Magazines Top 10% of franchises to buy and featured on Lifetime’s The Balancing Act, over 40% of Fantastic Sams salons/franchisees are women owned, and that number is projected to grow in the future.

“As a mom looking to get back into the workforce, Fantastic Sams was the perfect opportunity. Being a salon owner allows me the flexibility to manage my family life and my career. I’m able to pick up my daughter from school, spend time with my family and run a successful business,” said Marilyn Tokatly, a multi-unit franchisee in Southern California. “The hair salon business also tends to be stable during a slowing economy because people always want to look good. Guests usually visit the salon every 4-6 weeks, which builds a solid customer base. And when they leave feeling fantastic about themselves, it creates a high degree of customer loyalty,” she added.

With nearly 1,400 salons nationwide, Fantastic Sams has a solid, proven system of success, which allows women business owners to go into business for themselves, but not by themselves.
“With our business model and support network, we provide all of our franchisees with valuable information and resources to help them operate a successful business,” states Jeff Sturgis, Vice President of Franchise Sales & Development. “We recognize how important it is that we continue to support the growth of this dynamic sector of women business owners”.

Already a big player in the $59 billion hair salon industry, Fantastic Sams offers a full range of hair salon services catering to men, women and children of all ages. Customers at any Fantastic Sams can expect the full service treatment from a professional team of stylists up-to-date on the latest trends and fashions. Haircuts and styles, straightening, coloring, highlights and texturing are all available, as well as beard and mustache grooming, facial waxing and rejuvenating hair treatments. Fantastic Sams’ menu of services are also complemented by an exclusive line of professional hair care products.

The average initial investment to open a Fantastic Sams salon (ranging from $100,000 to $225,000) and the company’s fixed fee royalties make it one of the most competitive opportunities in the industry.

“We have become the leading full-service hair salon brand by offering the best in salon services and products, and by creating a customer loyalty that sets us apart from our competition - our guests recognize the difference,” states Sturgis.

Carey Goldberg in the Boston Globe reports that all of Massachusetts may soon become a trans fat-free zone.

The state’s public health commissioner responded enthusiastically yesterday to a lawmaker’s request that his agency impose a statewide ban on the artery-clogging fat in all restaurant food.

Last month, California became the first state to outlaw restaurant use of trans fat, found commonly in doughnuts, french fries, and chicken nuggets. Boston, Brookline, and Cambridge have also passed prohibitions. The Legislature came close to adopting a ban this summer but ran out of time.

“It is our responsibility to the residents of the Commonwealth to remove this poison from the food supply,” state Representative Peter J. Koutoujian, cochairman of the Legislature’s Joint Committee on Public Health, wrote to Public Health Commissioner John Auerbach yesterday.

Auerbach ardently supports the idea of a ban on trans fat, he said in an interview. The evidence is overwhelming that the artificial fat contributes to heart disease and other serious health problems, he said.

In his previous job as Boston’s public health chief, Auerbach pushed for the ban, which enters its first phase Sept. 13: All food-service establishments must stop frying, grilling, or sauteing foods with oils that contain partially hydrogenated vegetable oil.

In the coming days, Auerbach said, he will look into whether his agency has the regulatory authority to impose such a ban and also confer with the local health officials who would enforce it. Auerbach said he plans to visit New York City, where a ban on trans fat was approved in 2006, and learn from its experience.

“I believe that this kind of a measure would be as significant as the state’s historic ban on smoking in workplaces, in terms of its affecting all of the residents of the state and in terms of reducing a contributing factor to a deadly disease,” Auerbach said.

Koutoujian said he did not know with certainty that the state Department of Public Health has the authority to impose the ban by fiat, but the agency “has wide-ranging powers, and I believe that this prohibition may just fit within those powers.”

The Massachusetts House of Representatives passed a statewide ban on trans fat in June, but the Senate did not vote on it before the Legislature closed its formal session at the end of July.

If he were to wait for legislative action, Koutoujian said, it might take another year or two. In that time, “hundreds of people may die from the continued ingestion of trans-fat,” he said. “The federal government says there is no safe level of trans fat.”

The bill faced virtually no opposition. Peter G. Christie, president of the Massachusetts Restaurant Association, testified to the Legislature last year that if public health officials said trans fat needed to be removed from food, “the question would only be how and when.”

Cartridge World New England a NEFA member, is proud to announce the opening of the new Cartridge World Milford!  This new location represents the 11th store in Massachusetts and the 20th in the greater New England region. 

Serving residents and businesses along I-495, Cartridge World Milford has planned a very special Grand Opening celebration for September 28th, which will include sending a lucky family of four to Boston to see the BOSTON RED SOX play the Yankees in the last regular season game of the year! 

The winners will not only win tickets to the game but will also receive FREE limo transportation to and from Fenway!  Special thanks to Town House Pizza, Exceptional Limo, TJMaxx, TD Bank North, and WMRC Radio for sponsoring this event!  Stay tuned to your e-mail for more information and in the meantime, feel free to visit the new Cartridge World in Milford!

UFood Grill a franchisor and operator of fast-casual food restaurants, announced that its area developer in Sacramento has signed a lease for a unit in the Westfield Galleria Mall in Roseville, CA. This will be the first UFood Grill location within a shopping mall and the second location in Roseville. The franchisee anticipates construction to begin in September culminating with the opening of the food court in time to accommodate the holiday shopping season.

George Naddaff, Chairman and CEO of UFood Grill comments, “We are very excited that our brand will continue to grow in the Roseville community. The Westfield Mall is a well-known retail development.”