Recently, New York Private Finance received an inquiry from a middle-market entrepreneur who was evaluating the prospect of acquiring several fast-food franchises. Having come across our website and recognized that we were willing to take illiquid assets as collateral for personal debt, he wondered if we could lend him money, secured by his ownership interests in some existing franchise operations. His goal was to lever his current franchise investments to fund the acquisition of others.
On the surface this is exactly what NYPF is all about. We take (mostly) middle-market equity investments as collateral for personal loans, which our clients use to invest for further wealth creation. The only hitch in this case, and it is a deal-killer, is that the typical franchise agreement restricts the franchisees’ ability to hypothecate ownership interests. Such was indeed the situation in this case, as our potential client soon recognized.
In addition to a group of franchises, however, this individual owned equity in other, non-franchise operations, none of which had any restrictions on the use of equity as collateral for a personal loan. In the end, our client decided not to proceed with the acquisition, so the question of a loan became moot. It is instructive to note, however, that many franchise owners have complex balance sheets with other, non-franchise investments. If the equity in these investments is available as collateral, then the entrepreneur can grow his franchise empire with a loan facility away from the franchise businesses. For an established franchisee with a well-diversified balance sheet, the impact of a loan from New York Private Finance can be significant.
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