CCA Finance offers financing for virtually any need a franchisee may have, including:
For Established Franchisees:
Up to 100% financing for…
• Additional Unit Financing – All costs including working capital.
• Acquisition of an Existing Unit - Including any needed upgrades or remodeling.
• Remodels – Including all equipment, leaseholds, etc.
• Upgrades
• New Equipment
• Working Capital Needs
• Partner Buyout
• Refinancing of Existing Debt – This allows the franchisee to lock in a low fixed rate and free
up personal assets previously pledged as in the case of an SBA loan.
For New Franchisees:
Up to 80% financing for…
• Start-up Financing– Including franchise fee, leasehold improvements, training costs, inventory, signs, equipment, as well as legal, accounting, and design fees. This amount excludes working capital.
• Acquisition of an Existing Unit- Plus any upgrades or remodeling.
**Up to 84 month financing is available on transactions over $150,000. Balloon payments up to 10% and flexible payment structures are also available.
Credit Package Requirements
A complete financial package consists of the most recent two years Personal and Business Tax Returns and a current business interim financial statement for borrowings up to $150,000, and the most recent three years and an interim for borrowings $150,000 and greater. A current Personal Financial Statement and a Sources and Uses Statement outlining anticipated costs of the project are also required. These financial package requirements apply for all requests involving new and established franchisees. CCA Finance does, however, offer an App Only Franchise Program for both working capital and equipment transactions for established franchisees! The program can be used when the amount requested ranges from$15,000-$150,000 and no financial statements or tax returns are provided. An overview of this program can be found on the attached page. Funding franchise transactions is easy, and project financings (such as those involving build-outs and delayed funding resulting from new construction) is made easier through use of the CCA Finance Master Finance Agreement with Multi-Payment Schedule. The customer is only required to pay interim interest until the payouts are completed and they are ready to begin making full payments!
Franchise Loan Application Package:
Compiling and submitting the loan application package is the first step in the credit review. An application package that is complete and accurate will result in the soundest and quickest credit decision. The preferred loan terms, including the number of months and purchase option, must be shown. Specific attention to the following areas will result in a prompt response to the request. Note, a complete credit and financial package will include ALL of the items referenced below.
1. Purpose of Loan—The purpose of the loan should always be essential to the successful operation of the business making the application. The total cost of the loan should make sense for the size of the business or type of franchise. Serial numbers will be required on all essential equipment prior to funding.
2. Transaction Summary–A complete write-up of the transaction to include an explanation of
ownership in any other franchises (specifically the franchise being requested), associated debt with specific cost information, a complete description of any equipment included, an explanation of any industry experience of the PGs, copies of resumes, and information that might enhance the understanding of the transaction. Explanation regarding any additional debt being incurred and/or any commitment to open additional stores and any debt associated with these openings. Explanations of any unusual items contained in the PFS, CBR, tax returns (business or personal) or accompanying documentation would be helpful in our overall evaluation of the transaction. All collections, liens, judgments, and delinquencies relating to the business must be explained.
3. Proof of cash investment: Explanation of how money is being invested/borrowed by the
business/guarantors and proof of where the money is derived. Any representations concerning gifted monies put into the business must be in a form acceptable to CCA Finance Specialty Finance .
4. Completed Source and Use Funds worksheet or Initial Capital and Cashflow Worksheet. Entries must be supported by the bank statements, retirement and stock account statements, and credit bureau reports. All costs involved in the start up of the business must be detailed.
5. Legal Name—The application must include the complete legal name of the applicant. UCC filings will be made in the exact corporate name as shown on the filing with the state in which the company was incorporated. If the applicant is a corporation, LLC, etc., this must be the exact corporate name as listed with the Secretary of State, including punctuation. CCA Finance will verify with the Secretary of State the legal name of the borrower and the legal status of the corporation, LLC, etc. Should the Secretary of State indicate the corporation is dissolved or not in good standing, CCA Finance will require written proof of reinstatement prior to funding. If the applicant is a start up, copies of the Articles of Incorporation/Organization (if LLC) will be required for verification of ownership, entity structure and legal name. If ownership is not etailed, then a letter from the CPA or attorney on their letterhead, signed and dated, detailing the exact ownership percentages will be acceptable. The CPA or attorney license will be verified (should be in good standing, disciplinary actions will be reviewed).
6. Federal Tax ID Number or Employer Identification Number must be provided for all applicants (corporations, LLCs, partnerships, etc) regardless of time in business. CCA Finance must have this prior to funding.
7. Time in Business—Time in business should be indicated on the application. Proof of time in business may be accomplished from a reference from the franchisor, Secretary of State records, bank references, business licenses for sole proprietorships, D&B reports, Yellow Pages listings, tax returns or copy of the Bill of Sale (if applicable). Franchise Loan Application Package (cont.)
8. Equipment Location—The application must include the physical address of the applicant, the correct mailing address of the applicant and the address(es) of the location(s) of the equipment if different than the physical address of the applicant. Any difference in the applicant’s physical address and the location of the equipment must be explained.
9. Officer, Partner or Guarantor Information—It is absolutely necessary to have the correct name(s) of the principal(s), with correct spelling, proper title, home address (post office box numbers are not acceptable), telephone number and Social Security Number. Particular attention should be paid to name variations and generation designations such as Jr., Sr., etc. For those closely held businesses with several shareholders, CCA Finance will generally require the personal guaranty of any shareholder with a 25% or greater ownership share. Guarantors must always represent at least 51% ownership share. In the event the creditworthiness does not meet CCA Finance standards, CCA Finance reserves the right to require additional guarantors.
Proof of ownership is required on franchise lending requests. Proof of ownership may be accomplished from Secretary of State records, D&B reports, a letter from the applicant’s attorney or CPA (attorney or CPA certification/status will be verified by CCA Finance ), from tax returns, and in some cases as verified by the franchisor.
For those entities whose financial strength is dependent on a parent company, CCA Finance will generally require the guaranty of that entity. The use of co-lessees should be avoided. The primary entity using the equipment should be the lessee, borrower or debtor. In most cases, the parent company will be the guarantor. If the parent company is a corporation, then CCA Finance requires its corporate guaranty resolution indicating who is authorized to sign for the corporation. If the parent company is a general partnership, any partner’s signature binds the partnership/partners. If the parent company is a limited partnership, the general partner(s) must sign the guaranty.
CCA Finance requires its partnership guaranty resolution when a general or limited partnership guaranty exists. If the parent company is a limited liability corporation (LLC), the managing member must sign the guaranty for the LLC. For a LLC, a Certificate of Incumbency or Articles of Organization is necessary to determine who can obligate the LLC in a lease loan debt. If the entity guarantying the debt is not a parent or part owner, CCA Finance requires a statement of interest from the guarantor in the form of a letter on the guarantor’s letterhead specifically stating the following: "We/I will benefit from
10. Credit Bureau Reports–CCA FINANCE ’s primary and secondary CBRs on all
owners/personal guarantors (no more than 10 days old) are required for requests up to $99,999. All three CBRs are required for requests of $100,000 or greater. Scores must be a minimum of 675 Beacon, Fair Isaac or Empirica scoring models. All bank and/or leasing inquiries must be explained, as well as all collections, liens, judgments, and delinquencies. Credit card debt in excess of $25,000 may require submission of additional information and credit card debt in excess of $50,000 will require submission of complete tax returns and/or additional information. Franchise Loan Application Package (cont.):
11. Bank References—The name of the bank, branch name and location, telephone number and officer’s name are required. Accurate account and loan numbers are essential to obtaining information. Since many banks require their customer’s authorization prior to releasing any information, the applicant should notify his bank of his approval to release any requested credit information and should complete a written authorization for release of credit information in case the bank requires written approval. The checking account history should include date opened, verification of the name on the account, account number, type of account (business or personal), average balance, history of NSFs or overdrafts, account rating, any general comments given and authorized signers on the account. If bank references are not available, CCA Finance will accept the most recent three months complete bank statements. Any adverse information such as NSF or overdraft activity must be thoroughly explained.
12. Current Personal Financial Statement: Required on each PG (no more than 30 days old) and must be signed and dated. Include the most recent statements on retirement accounts, stock accounts, etc. shown on the Personal Financial Statement or the Source and Use of Funds worksheet (or Initial Capital and Cashflow worksheet). Balances must support entries on the applicable statements or worksheets.
Verification of Assets–CCA Finance will require supporting documentation to verify all
cash or securities listed on the Personal Financial Statement and/or the Source and Use of Funds worksheet or the Initial Capital and Cashflow Worksheet. A current statement from the financial institution holding such funds would be acceptable for this verification.
14. Financial Package – Most recent two years Personal Tax Returns and W2s for borrowings up to $150,000 and most recent three years for borrowings $150,000 and greater complete with schedules, specifically Schedules A, B, C, D, and E. Most recent two years Business Tax Returns for borrowings up to $150,000 and most recent three years for borrowings $150,000 and greater with all schedules (if existing or related business). Depreciation schedules may be excluded when sending business tax returns. Audited or reviewed financial statements may be accepted in lieu of business tax returns.
15. Franchise Agreement: Copy of the signed Franchise Agreement in its entirety is required.
16. Space lease: Copy of space lease in its entirety is required to include all exhibits, riders and/or schedules. The term and any renewals of the space lease must be equivalent to or greater than the terms of the loan. CCA Finance will review the terms regarding any default cures, identification of all parties to the lease, cost per square foot and any allowances for leasehold improvements. Concerning allowances for leasehold improvements—if an amount is not stated in the space lease, CCA FINANCE will question if an allowance is being provided by the landlord and the amount of the allowance. Any amounts the landlord is providing should be excluded from the total cost of the project when calculating the equity injection of the borrower.
Franchise Credit Guidelines: In addition to the credit package outlined above, the following will be applicable to franchise transactions:
New Franchisees:
1. CCA Finance may consider up to 80% of the initial costs which includes equipment,
leasehold improvements, signage, and the franchise fee when all other factors meet or exceed Finance ’s requirements as defined in these guidelines. CCA Finance will need
verification of all items paid by the franchisee.
2. Proof franchisee fees have been paid (assignment of store # may be accepted as satisfactory proof).
3. Explanation of who will run/manage the store and who will maintain their current employment and
income verified by W2s.
4. Cash flow from continuing sources must support both personal and anticipated business debt.
5. Business plan with proforma financial statements—balance sheet, income statement and cash flow statement
Existing Franchisees opening New Stores:
1. CCA Finance may consider up to 80% of the initial costs which includes equipment,
leasehold improvements, signage, and the franchise fee when all other factors meet or exceed CCA FINANCE ’S requirements as defined in these guidelines. CCA Finance will need
verification of all items paid by the franchisee.
2. Explanation regarding any additional debt being incurred and/or any additional stores being opened and any debt associated with these openings.
3. Royalty reference from franchisor.
4. Report on weekly sales of the franchisee.
5. D&B on existing franchisee. CCA Finance will review the Paydex, History/Operations,
Public Filings to include UCC information and any other information CCA Finance deems
necessary to make the credit decision.
6. Explanation of who will run/manage the new store as well as the existing store(s) and who will
maintain current employment (if applicable) and income verified by W2s.
7. As an exception to existing franchisees opening a new store, applications to $75,000 may or may not require a complete financial package. It would depend on the overall strength of the credit without them.
Existing Franchisees – Remodels or Updating Equipment:
1. Application only to $75,000 with a minimum of 2 years time in business. If request is greater than $75,000, time in business is less than 2 years, or with PGs whose credit card debt exceeds $50,000, a complete financial package will be required.
2. Royalty reference from franchisor.
3. Report of weekly sales.
4. D&B will be pulled to confirm ownership, Paydex, etc.
5. Terms are limited to 60 months.
6. May consider deferred beginning payments as requested and warranted.
Acquisitions:
1. Evaluation of Store Value Form or detailed explanation of how store being acquired was valued. Any valuations should be supported by the Franchisor.
2. The last 2 years complete tax returns and a current interim must be provided on the store being acquired as well as information on the weekly sales for the year. Information concerning the average weekly sales, confirmed by the franchisor, may be considered in lieu of the tax returns. This should only be used in those instances where the seller owns multiple locations and does not have a specific financial breakdown for each location.
3. Copies of all documentation required by the franchisor relating to the transfer of an existing franchise agreement between the assuming franchisee and the franchisor must be provided prior to funding.
Refinancing Existing Debt
1. Applications to $150,000, CCA Finance requires the following:
a. Most recent 2 years complete business tax returns
b. Current business interim (not more than 90 days old)
c. Personal guarantors of all owners with 20% or more ownership
d. Most recent 2 years complete personal tax returns on all personal guarantors
e. Current personal financial statement on all personal guarantors
2. Applications $150,000 or greater, CCA Finance requires the most recent 3 years complete
business and personal tax returns as well as b, c and e listed in #1 above.
3. Minimum 675 Beacon, Experian and/or Empirica CBR scores on all personal guarantors.
4. Satisfactory credit reference on debt being Refinanced.
5. Disclosure of the total debt of the borrowing entity/franchisee is required. If the borrowing
entity/franchisee owns multiple units or multiple concepts, the total debt of all units/concepts will be evaluated.
6. If the franchisee/borrower owns multiple units or multiple concepts, the total debt of all units/concepts will be evaluated.
7. CCA FINANCE must review profitability.
8. A UCC search will be conducted and an assignment of the UCC filed by the current lender will be requested.
Franchise Funding Guidelines:
General Funding Terms for All Transactions:
1. All transactions will be documented using CCA Finance Specialty Finance ’s Finance Agreement and supporting documentation. CCA Finance Specialty Finance ’s Lease Agreement and supporting documentation may be used for equipment only requests.
2. Federal Tax ID or Employer Identification Number is required on all borrowers and corporate guarantors.
3. Liability and/or property insurance required but may be funded without proof
4. Drivers License(s) required
5. On-site inspections for deals $50,000 or more, or as may be deemed necessary by CCA Finance Specialty Finance. On-sites may be required based on exposure when equipment on existing leases/loans is at the same location as the current request.
6. Landlord Waiver required on transactions $75,000 or greater or when there is exposure of $75,000 or greater at the equipment location.
7. Vendor Qualification required per CCA’S Standard Credit Guidelines.
8. Detailed vendor invoices including serial numbers on applicable equipment are required on all
transactions.
9. Corporate Guaranty/Corporate Guaranty Resolution (if required).
10. If space lease has not been provided prior to submission of the funding package, it must be provided and approved prior to funding.
11. The location must be open for business prior to any funding by CCA Finance Specialty Finance.
New Franchisees:
1. ACH required on all transactions—use the Mandatory ACH form.
2. Blanket UCC (1st lien position) to be filed. UCC searches
should be done on new locations under the new entity name and on each personal guarantor to ensure 1st lien position. Subordinations should be requested as needed.
3. UCC search on acquisitions (done on buyer and seller) and applicable subordinations. UCCs should be filed immediately following or, preferably, prior to conducting the UCC search.
4. Confirmation of a business bank account prior to funding.
5. Terms may be limited to 60 months depending on the quality of the credit.
Existing Franchisees-New Stores:
1. ACH required if existing location(s) has less than 2 years time in business
2. Blanket UCC (1st lien position) to be filed (Broker to file if discounting transaction). UCC searches should be done on new locations under the current entity name as well as the new entity name (if a new entity is created) and on each personal guarantor to ensure 1st lien position. Subordinations should be requested as needed.
Existing Franchisees – Remodels or Updating Equipment:
1. UCC should be filed on applicable equipment.
Acquisitions:
1. Buy/Sell Agreement between seller and buyer necessary for acquisitions.
2. Bill of Sale needed for acquisitions.
3. UCC search on acquisitions (done on buyer and seller) and applicable subordinations. UCCs should be filed immediately following or, preferably, prior to conducting the UCC search. A blanket lien (first lien position) is required on location being acquired. CCA FINANCE reserves the right to require a first position blanket lien on any other available locations.
4. Acceptable Purchase Agreement and Bill of Sale
Refinancing Existing Debt:
1. UCC search (on borrower and all PGs) and applicable subordinations. UCCs should be filed
immediately following or, preferably, prior to conducting the UCC search. Best scenario to reFinance existing debt would be to have the existing creditor assign its UCC to the lender and CCA Finance .
2. Statement from existing creditor indicating it will release its UCC filing upon receipt of payoff funds.
3. Acceptable payoff letter on debt being refinanced.
Franchisor Approval Guidelines
CCA Finance is interested in establishing relationships with franchisors to offer financing products to their franchisees. Relationships will be based on the franchisor’s established history in their particular sector, number of locations, franchisee relations, fees involved, amount of financing required, financial position of the franchisor, as well as numerous other factors. A current Uniform Franchise Offering Circular will be required on all franchisors prior to the first funding over $75,000 or total fundings reach $75,000.CCA Finance will require an updated UFOC annually.
Franchisor Experience
A. Time in Business –CCA Finance is looking for a minimum of five years’ experience
both in business and with franchise operations. Time in business and franchise experience will be verified through the UFOC.
B. Experience of Principals – The experience level of those responsible for the
operation of the franchisor will be evaluated by CCA Finance . CCA Finance is looking for principals that have a minimum of five years’ experience with the current or with a previous franchise concept. Any bankruptcy associated with a principal, primarily a principal directly responsible for the franchise operations will be an area of concern to CCA Finance and must be explained to CCA Finance’s satisfaction.
II. Scope of Operations
A. Location of Franchisees –CCA Finance will require the franchisor to be licensed in all
states for which lending requests are sought.
B. Number of Locations –CCA Finance is interested in both regional and national
franchisors. A regional franchisor should have a minimum of 75 locations, all within the
footprint of the franchisor. A national franchisor should have a minimum of 250 locations.
C. Company-Owned Stores – Company-owned stores should not exceed 25% of total
stores. The majority of income should be from franchise fees and royalties as opposed to sale of
products and equipment.CCA Finance is looking for concepts that concentrate the majority of their operations to those associated with the support of the franchisee.
D. Primary Focus of Operations –CCA Finance will perform a subjective evaluation to
determine what factors make the particular franchise successful. Of primary interest are those
stores that rely heavily on the name associated with the franchise. Of less interest are those
concepts that rely on the individual sales ability of the franchisee.
E. Troubled Franchisee –CCA Finance will conduct discussions with the franchisor to
determine the level of cooperation and assistance the franchisor provides to franchisees that are
not performing to acceptable standards.CCA Finance is particularly interested in developing
relationships in which the franchisor takes an active roll in assisting franchisees in trouble to
overcome problems at the location or to replace the franchisee without allowing the location to
"go dark."
F. Supplies – The UFOC will be reviewed to determine the means by which supplies
for the franchise location are purchased.CCA Finance is primarily interested in insuring standards are maintained within the franchise concept and a consistent level of service is provided.
G. Territories – The UFOC will be reviewed to ascertain the territory granted within
the franchise purchase. If a protected territory is not guaranteed, CCA Finance will review the UFOC language to insure that disclosure has been made to the franchisee that a protected territory has not been granted and the franchisee may face competition from other franchisees and/or from company-owned stores.
H. Terminations/Renewals – The franchise termination policy of the franchisor will
be reviewed to determine if the terms for termination are clearly defined and do not present an
undue risk. The current term of the franchise agreement should be for a period of time that
exceeds the term of the CCA Finance lending commitment.
I. Space Leases –CCA Finance will evaluate the franchisor’s role in the franchisee space
lease to determine how the franchisor handles defaults (are they the lessee and sublease to the
franchisee, can the lease be assigned to the franchisor in the event of a default, what rights does
the franchisor have in the event of a default, etc.).
J. Franchisee Qualification Criteria – The criteria the franchisor uses to qualify
potential franchisees will be reviewed to determine if the franchisor requires the franchisee
candidate to have the financial strength necessary to establish and operate the business.
K. Resale Valuation –CCA Finance will attempt to ascertain a reasonable valuation process
to determine the resale value of the franchise concept. The franchisor will be asked how they
value a franchise for resale and CCA Finance will compare that valuation process to other concepts and experience in the industry.
III. History of Franchise Operations
A. Growth Pattern –CCA Finance is primarily interested in franchises that are showing a
minimum of five percent growth per year. A growth pattern of less than five percent or a decline
should be explained. There are times, for example, when a mature concept may experience a
decline through changes in store locations as warranted by changing demographics of older
stores.
B. Growth Plans – It is hopeful that the franchise concept is in a growth stage. CCA FINANCE
will evaluate the stated growth plans if available in the UFOC. When evaluating a franchisor in
subsequent years, CCA Finance will review previous UFOCs to determine if the growth forecast by the franchisor has been accurate. When available, franchisee commitments will be evaluated to determine the number of commitments outstanding and whether those commitments are for
single franchisee locations or for multi-franchise franchisees.
C. Turnover –CCA Finance is looking for concepts that experience a total turnover ratio of
eight percent or less. Total turnover is defined as transfers, cancellation, terminations, left the
system other, franchises not renewed, and reacquired by franchisor divided by the number of
stores at year end. Turnover ratios in excess of this guideline should be explained to CCA FINANCE ’s satisfaction. It is preferable to have the explanation from the franchisor in a written format.
D. Litigation and Bankruptcy –CCA Finance is not interested in establishing franchisor
relationships with franchise concepts that are currently in or has emerged from bankruptcy
proceedings within the past five years. Personal bankruptcies of principals or officers will also be
reviewed and may be reason for decline. Litigation involving the franchisor will be reviewed
with special emphasis on any litigation involving franchisee operations. CCA Finance is not interested in establishing relationships in which pending litigation would impose an undue risk either in the number, circumstances, or dollar amount involved. If the franchisor or any of its executive officers have been convicted of felonies involving, for example, fraud, any violation of franchise law or unfair or deceptive practices law, or are subject to any state or federal injunctions involving similar misconduct, it may be reason for CCA Finance to decline doing business with that franchisor. Additionally, CCA Finance will evaluate the environmental risks associated with the franchise operation and review litigation to determine whether it imposes an undue risk. This is of primary importance in franchise concepts such as auto services, convenience stores with gas pumps, and lawn maintenance concepts.
IV. Costs Associated with Franchise Operations
A. Initial Costs – Initial costs include franchise fees, training, FF & E, grand opening
costs, initial inventory, rent, signage, leasehold improvements, professional fees, working
capital, etc. Initial costs should be appropriate to the type of franchise and within the ability of
the franchisee to support.
B. Start-Up Locations – Franchisees will be required to provide a minimum of 20%
of the start-up expenses associated with the franchise in non-borrowed funds. CCA Finance will generally provide financing up to 80% of the initial costs, which includes equipment, leasehold improvements, signage, and the franchise fee. CCA Finance will require evidence that the franchisee has put in the required investment. This can be done by comparing the initial costs to the amount of the requested funding.
C. On-Going Fees – On-going fees include royalty fees, advertising fees, etc.
Royalty fees should be within five to eight percent of gross sales and advertising fees should
range between three and five percent, depending on the type of operation and the estimated sales. Total on-going fees should not exceed eleven percent of gross sales.
D. Site Selection –CCA Finance will review the UFOC to determine how a site is selected.
The location of the franchise is of primary interest to CCA FINANCE . Risks associated with franchisee failure can be mitigated by securing a location that the franchisor would want to keep open even if the original franchisee were to fail. If the franchise is one that relies on traffic flow it would be preferable to have the site selected utilizing demographic studies that take into account traffic patterns, location of competitors, populations within in a pre-determined proximity, price, terms of available leases, comparable costs, etc.
E. Training –CCA Finance is looking for franchisors that support new franchisees with an
appropriate level of initial and on-going training at a reasonable cost to the franchisee. The
UFOC provides this information, as well as information related to franchisor-specific manuals.
F. Financial Position of Franchisor
A. Revenue –CCA Finance is looking for franchise concepts that show $5,000,000 in
revenue.
B. Total Assets – It is preferable for a national concept to reflect total assets of
$2,500,000 and a regional concept to reflect $1,000,000 in total assets.
C. Tangible Net Worth – National concepts with a tangible net worth of $1,000,000
and regional concepts with a tangible net worth of $500,000 are preferred.
D. Income – The majority of income should be from franchise fees and royalties as
opposed to sale of products and equipment.
E. Financial Presentation – Revenue number and cost of sales amounts should be
broken out between those generated from franchise operations and those generated from other
activities.
To find out if more about this program contact: Sam Clark of Commercial Capital Associates
Phone: 949-226-1798 sam@ccafinance.com
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