The 2012 federal JOBS Act lessened restrictions on individual investing. The bill allows individual investors to pool capital as part of a marketplace, so they can provide larger loans to small businesses.
This has led to a number of direct lending opportunities aimed at specific businesses. At least one company aims to make financing a franchise start-up as easy as, well, apple pie.
San Francisco lender ApplePie Capital has raised $6 million in Series A Funding and $28 million in debt capital commitments specifically to fund franchise loans. They provide qualified loans from $100,000 to $1 million at competitive rates starting at 8 percent, with no hidden fees, prepayment penalties or personal collateral requirements. Loans are secured by the assets of the business and the owners’ personal guarantees.
There’s also less paperwork involved. Both investors and borrowers apply through a short, online form. Loan approval and closing can take place in as little as 30 days.
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Franchises Provide Proven Business Model for Funding
Marketplace lenders such as Funding Circle, OnDeck and Lending Club offer similar crowdfunding loans to small businesses, but ApplePie Capital is unique in specializing in loans to franchise businesses. In part, this may be to make investors more comfortable to commit funding.
As The Wall Street Journal reports, as a relatively new lender (it started only last January), ApplePie Capital itself lacks the financial data on losses and lending track record investors look for. The company’s pitch is that it is working only with established franchise brands with proven records of stability and growth that have already pre-qualified applicants as good business risks. Franchises offer proven business models and support that greatly increase the likelihood of the business succeeding and the loan obligation repaid in full.
Potential franchise owners get approved for an ApplePie Capital loan much more quickly than they would from a traditional lending source. Biz Journal reports that applicants without significant business or industry experience for loans under $1 million have difficulty obtaining approval. Even loans backed by the Small Business Administration can take as long as six months to close.
Funding Einstein Bagels
One of ApplePie Capital’s first loans was for $465,000 to fund an Einstein Bagels location in San Diego. Nation’s Restaurant News reports the borrower had tried SBA financing but bridled at the requirement that all assets must be locked up as collateral, since those assets might be needed for future stores. ApplePie Capital was able to structure a financial plan for a mutli-unit roll out with flexibility the SBA couldn’t offer. Indeed, according to Peer Finance 101, ApplePie Capital actively seeks to partner with new franchise owners to provide financial planning and budgeting.
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Lending With an ApplePie Twist
According to Franchising, ApplePie Capital also provides a social network twist to the peer-to-peer lending model. Potential borrowers are provided incentives to draw on their own social networks to raise capital. For example, if you can raise 20 percent of the loan amount from family, friends and other members of your own social network, your origination fee gets reduced from five percent to three percent. The idea is that tapping into your own network for funding creates additional interest with more stakeholders vested in the success of your venture even before it gets off the ground.
Is ApplePie Capital right for your franchise? It does offer very attractive rates as well as quick turnaround time for loans designed specifically for the needs of new franchise businesses. While it is relatively new, peer-to-peer lending has proven a highly efficient and relatively safe funding model for many small ventures.
At the very least, it’s an option worth a taste-test.