FRANalyst Fridays: Underwriting Costs, Small Business Loans, and Pizza

April 27th, 2018 by Ritwik Donde

Franchise Lending Becomes More Dependent on Better Brand Credit Info

About 80% of small businesses want loans that are less than $500,000. It costs banks just as much to underwrite a million-dollar loan as it does a $100,000 loan.[1] Research from the Federal Reserve found that small business borrowers spend an average of 24 hours on paperwork for bank loans and approach multiple banks during the application process.[2] Several forward-think lenders’ credit decisions have become more data driven, relying more on algorithms than personal relationships. Efforts to reduce underwriting costs has resulted in greater reliance on statistical risk measures like FRANdata’s FUND Scores. A recent Moody’s Analytics study noted that banks across the country have begun to address this challenge by standardizing their credit analyses of small businesses (which includes franchise loans) through adoption of automated spreading and quantitative scoring models for larger loan sizes. Franchisors who act now to track and improve their performance data will be best equipped to remain competitive in the changing lending environment.

In the News

  • How Banks Can Raise Their Game in Small Business Lending [2][Moody’s Analytics]
  • SmartBiz Loans Uses Tech and People to Expedite SBA Loan Applications [Forbes]
  • Is Pizza Entering a Golden Age in Quick Service? [QSR]
  • Facing Headwinds in the Loan Market, Entrepreneurs Look Elsewhere for Funding [WKSU]
  • Consumer Confidence Rebounds; A Prelude to Another Market Rally? [Fox Business]
  • Why Banks Are No Longer Lending to Small Businesses [1][BPlans]