Franchise Financing: BBVA Compass

Two years ago, GE Capital liquidated its franchise finance arm in an effort to streamline its core offerings and curtail regulations. While the bulk of division’s portfolio was sold in parts to three banks — Wintrust Financial, First Tennessee Bank and Sterling National Bank — the finance team largely stayed together, bringing their years of franchise expertise to BBVA Compass, one of the largest financial institutions in the country.

Franchise finance background

James Short was the senior vice president of GE Capital Franchise Finance before the liquidation and now serves as director of Food Franchise Finance for BBVA Compass. We talked to Short about how the industry has changed and what his team can offer franchise restaurant investors that other lenders can’t.

Financing options

Short: Most of our team came from GE Capital Franchise Finance, so many of us have been working with restaurants for 15 or 20 years now. When we started the group here at BBVA, we decided to take a vertical approach, so we have programs for small, medium and large franchisees.

For our small franchisees — people starting out in the one-to-five-unit range — we have a great SBA loan program. Once they get into the 8–10 rage, we transfer them out of SBA and into conventional loans. For a franchisee who has more than 40 or so units, we’ll transfer them to our nationwide direct sales team, who are typically going after the top 200 franchisees across the country.

Whatever the level, we service the banking and cash management needs of the franchisee. Our local lenders work closely with the franchisee for their lending needs, and folks from my team act almost as industry consultants — we call ourselves “champions” — to provide information and credibility to the local lenders.

Industry partnerships

Short: We do. We finance and bank a number of franchisors. We also finance independent branded concepts and owner-operators. It really varies. We work with independent branded concepts that may have 75 or 100 units, but we also work with a large corporate chain that has far more, so we really work up and down the spectrum.

Vetting process

Short: For a new franchisee, we are looking at their financial wherewithal and past operating experience. We also want to see that they have some semblance of a back office staff, even if it’s small. We want to know if they have a third-party CPA or an accountant on staff who can create the financial statements that will show us whether or not the project we are lending against is performing well. At the end of the day, we are really looking at the management expertise of the investor. Secondary to that is the brand.

Short: On a case-by-case basis. 70 percent of our projects are with large national and regional brands, but if there is a tier-two or tier-three brand that is doing well with a certain demographic or within a certain geography, we will strongly consider it.

Short: Because so many of us came from GE Capital, we’ve got a wealth of experience in structuring transactions. When we came to BBVA and got the banking products and capabilities they have to offer, it really was the perfect combination of our experience with the most competitive pricing and products.

Short: I think that for larger operators, franchisors are imposing greater development requirements, so most seasoned franchisees are looking not only to refinance existing debt when they decide to open new units but also for a line of development credit that provides the ability leverage the embedded equity they have to help finance future development. That's something we are seeing more and more of