As recently as 10 years ago, banks didn't understand the
added value of running name-brand franchises and were hesitant to
loan money to small-business owners hoping to expand. While a large
part of the franchise community has overcome this perception, women
and minorities are still having trouble accessing capital.
Take, for example, corporate refranchising. The added liquidity
helped many franchisees go from operating a few stores to 50 or
more. But for minority franchisees, biases have kept them from
being able to grow at the same rate.
To address this problem, New York City-based United Enterprise
Fund (UEF) was created in 1999, not only to help minorities get
franchise financing, but to bring a better financing structure to
the industry.
Content Continues Below
The fund works with proven women and minority operators in the
restaurant industry, acting as a partner and putting in $1 million
to $3 million to help franchisees expand. "Most minority and
women franchisees, while they may be successful operators and may
on paper have a very impressive net worth, tend not to be
liquid," says Jeffery
Keys, managing partner with UEF. "They need to partner
with someone who can actually cut a check for $2 million.
That's the space UEF is in."
Obviously, funds like UEF can be beneficial only if franchisees
know about them and, according to Keys, many women and minority
franchisees simply don't. "In general, minorities
don't have access to the same types of information or networks,
and that lack of access means, even though many minority operators
are more than [qualified to receive funding], we're not talking
to each other. They don't know how to reach me," Keys
says.
But it's not just that franchisees are suffering from a lack
of information—lenders also need to be educated.
"There's an education process [lenders] have to go through
to understand that these businesses, by virtue of being located in
a certain area or being owned by a certain ethnic group, [are] not
more risky," Keys says.
According to Keys, franchise associations are an ideal place for
lenders to get that education. "A number of minority
associations are more than willing to help businesses and capital
providers get over this perception barrier," he says.
"Fortunately, minorities are taking it upon themselves to
provide this education."
UEF is also taking an active role in changing perceptions.
"Funds like UEF are leading by example. They're making
these investments, helping dispel the stereotypes and breaking down
the perceptions of risk," Keys says. "We hope that by
making these investments and having these success stories,
we'll attract other capital. In a way, funds like UEF are
catalysts for bringing other funds into urban and minority areas,
because they'll look at our success and say, 'This is
great. We'd like to be in those markets and make those returns
as well. Maybe it's not as risky as we thought.' Then maybe
they'll be the providers of follow-up capital."