[Editor’s note: This is a blog post from Denise Thomas at ApplePie Capital. ApplePie Capital is a Bronze Sponsor at LendIt USA 2017 which will take place on March 6-7, 2017 in New York City.]
Looking for stable fixed-income investment opportunities that can potentially deliver high single-digit to low double-digit returns?
Franchise debt – loans made to small business entrepreneurs working with established franchise brands – offers one of the best risk-reward equations in the marketplace today. Recent regulatory changes stemming from the JOBS Act and advancements in marketplace technology are making franchise debt widely accessible to individual and institutional investors for the first time.
A Proven Model
Franchise loans are made to enterprises that follow proven business models and are backed by the central resources of a national or regional brand with strong incentives to see their franchisees succeed. Putting capital to work in franchise debt is an investment in highly qualified entrepreneurs and established franchise brands that serve thousands or even millions of consumers and businesses. By deploying capital to a “business-in-a box,” investors can generate a reliable income stream that supports a multitude of fixed-income or alternative asset strategies.
Five Reasons to Invest in Franchise Debt
No. 1: Franchise debt offers attractive return potential for fixed-income investors.
Investors can earn stable, high single-digit to low double-digit returns that are better than the returns of traditional fixed-income securities. Few fixed-income opportunities offer such appealing, risk-adjusted returns.
No. 2: Franchise debt of top-tier brands has a history of quality.
The industry’s top franchisors have a demonstrable track record of ensuring the quality and creditworthiness of its franchisees. As a result, loans to franchisees from the best franchisors tend to be lower risk, particularly in comparison to loans or investments in other start-up businesses.
Just as important, franchisors have a clear financial stake in their operators’ success and provide resources to maximize the franchise’s profitability. Independent businesses and start-ups simply don’t enjoy this advantage.
No. 3: Franchise debt offers broad diversification.
Franchise debt can fulfill two purposes of an investor’s portfolio, depending on the loan’s characteristics and the investor’s strategy. Franchise debt can be part of a fixed-income allocation or an alternative asset allocation. Franchise debt also offers broad diversification by geography, industry, brand, duration and risk, among other loan characteristics.
No. 4: Franchise debt is transparent and easy for investors to understand.
Franchise operations are straightforward and lack the complexity and uncertainty of more complicated and unproven business models. Franchise disclosure documents (FDDs) and bank credit reports provide a level of transparency into franchise operating metrics.
FDDs provide extensive information about the franchisor and the franchise organization. These documents are intended to give potential franchisees enough information to make educated decisions about an investment. Additionally, franchise financial reporting is done in accordance with the auditing and compliance requirements of the franchisor.
No. 5: Franchise debt is an investment in entrepreneurship and the American dream.
Franchise loans enable investors to support entrepreneurship and fuel economic growth and jobs in local communities. Franchisees are hard-working entrepreneurs interested in building a business and a better life for themselves.
To learn about ApplePie Capital’s franchise marketplace, visit www.applepiecapital.com.