Marketplace lending comes in all stripes, serving needs of specific markets. ApplePie Capital has its sights set on franchise finance and helping small business owners tap into the power of some marquee brands.
Online lending has seen a bumper crop of companies sprout in the last several years as technology has enabled risk and underwriting models to become faster, decisions to be made more quickly and new options to emerge in small business financing.
Specialized lenders come together with specialized end markets, and in the last several months, the franchise industry has also seen the creation of its own marketplace lender, ApplePie Capital.
The company has been on a growth trajectory since raising $6 million in Series A capital last year, along with debt commitments of tens of millions of dollars. The firm has been partnering with several franchises along the way, most recently announcing partnerships with nine more franchises late last month, including Dunkin’ Donuts, Genius Kids and several others, across 9,000 small businesses and now sporting a roster that has 32 brands. The loans stretch across five to seven years, starting at $100,000. Loans are then sold both as whole loans to institutional investors as well as, fractionally, to qualified individual investors.
Denise Thomas, ApplePie Capital CEO and founder, told PYMNTS that among the differences in getting funding for a franchise business include a number of benchmarks that are tied to operations, “from revenues to breakeven to profits” that are part of a franchise business model. “Lending to Joe’s Pizza on the corner is not the same as lending to Marco’s Pizza, which has 600 units and is growing and which has unit economics” that a lender can use in consideration of funding, “with a clear view of what a successful operation looks like.”
That’s not to say that there are not challenges in place with an entrepreneur seeking to obtain financing, said Thomas. One key hurdle rests with timely access to capital. If, as in all real estate decisions, part of the success in franchising is about location, location, location, then waiting for funding, while trying to get the prime store front, can be a difficult experience. She noted the traditional funding route can take weeks in a speedy case and can drag on “three to six months, while, meanwhile, real estate is going away [being taken off the market] and lenders may want you to secure a location.” This can short circuit a business opening. And, in addition, would-be borrowers, she said, “may not want to pledge collateral,” such as their own homes.
In contrast to rejection from banks, slow time to approval (and release of funds) and lower collateral requirements, Thomas said that ApplePie offers speed to funding — “in under 30 days.”
One key lure of the franchise business model is replicable success and growth (the former, of course, tied to the benchmarks noted above). Yet, the collateral demands of the traditional lending model can have a dampening effect on that growth. Thomas told PYMNTS that collateral requirements can be so onerous that they can effectively prevent franchisees from moving on to ever open up locations, despite growth and success.
ApplePie, with less emphasis on collateral in its own lending (but with some other avenues of recourse, such as access to the properties themselves, insurance policies or personal guarantees) can effectively free up operators to open several locations over time.
As has been seen in marketplace lending across different end markets, technology makes a difference in the lending process, and the same is true for ApplePie and for the franchise market. With partnerships that Thomas maintained remain with “established brands with established working capital, equipment breakeven levels and predictability” after capital outlays, ApplePie’s own lending process remains streamlined online and also allows the company to be the only lender in each of the 50 states to offer financing in fewer than 30 days and qualification for loans within two days.
What about moving beyond the U.S.? Thomas told PYMNTS that natural progression might include cross-border lending (and cross-border pollinations of franchises) across Canada and the United Kingdom. For now, the market stateside is certainly big enough, with roughly 800,000 franchises in the U.S., amid what Thomas said is growing demand, and annually represents three percentage points of GDP.
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