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BUSINESS

4 MIN

ApplePie Capital is Making Investing in Small Businesses Simpler

Entrepreneur Mohammed Janny knows a thing or two about being a franchisee. He’s owned several franchises dating back to the 1990s, including a Dairy Queen and four Baskin Robbins stores. These days he operates two Massage Green Spas, one in Michigan and the other in San Diego, where he is also the area developer for the expanding franchise chain.

For Janny, these new businesses suited him for a number of reasons, both professional and personal. “I needed some massage therapy and found it really expensive, and then I found this franchise that is opening 800 locations over the next 10 years,” he says. “They provide much better value packages for clients and they use only green products, both in the operations and construction of their salons. I watched it for a couple of years and then bought in.”

Buying in is one of the first big challenges franchisees face when opening a new business. So when Janny decided to get back into the franchising game, he shopped around for the best financing option. That’s when he found ApplePie Capital, a San Francisco-based alternative lending startup.

ApplePie launched last January and has established itself by specializing in the franchise sector. What sets it apart is how it matches accredited investors who want a bite of an established franchise brand – or even just a nibble at the crust – with franchisees looking for capital, and lists loans with buy-ins as low as $1,000 a unit (all figures in U.S. dollars). Plus, says Janny, as a franchisee “they don’t demand you to put up your first born as collateral, or lien your house. They take the business and assets as collateral, which is fair.”

It’s not necessarily that franchisees have trouble getting a loan, it’s the time it takes to get approved.

For the expanding franchise owner, access to capital can be difficult, largely because they’re often viewed as a risk by banks that require more work and a lower return on investment than larger enterprises and their seven-figure deals – this despite the fact that franchises represents about 3.1% of GDP in the United States. “Franchises are a $500 billion sector of the economy, which has grown 26% a year,” says John Neff, head of marketing at ApplePie.

Even more vexing than securing funds can be the timeliness of receiving it, Neff adds. “It’s not necessarily that franchisees have trouble getting a loan, it’s the time it takes to get approved. That lease, that location isn’t going to sit waiting for approvals,” Neff says. “With most franchises the key is location. When the opportunity comes up you have to be able to move quickly … and we can do that.

ApplePie steps into the scene as an online lending platform offering fast turnaround, with approvals in five days or less and application-to-funds-transfer completing in less than 30 days.

“The fastest (a small business) lender can do it is 30 days if they know your business sector, otherwise it’s 60,” Neff says.

For the franchisee, ApplePie’s speed does come at a price: It offers loans from $100,000 to $1 million at an APR of 8% to 13.5% for terms of three to seven years. However, as Neff and Janny point out, there’s no personal cash component or security required. The loans are for 100% of the money needed.

For investors, the process involves registering and then picking and choosing which loans to buy into, with delicious rates of return, typically 7% to 12%. While ApplePie’s portfolio is as American as the name implies – it is currently administering loans solely in the United States with U.S. franchises – investors are welcome from anywhere, provided they qualify as accredited investors under the U.S. definition.

ApplePie’s platform makes it easy to administer a pool of smaller investors and keep the funds flowing.

The key piece in the middle of the pie is the technology platform, developed in Silicon Valley’s financial technology sector. Founded by veteran executives CEO Denise Thomas and COO Steve Pelletier (who’s done stints at Ask.com and Indiegogo) ApplePie’s platform makes it easy to administer a pool of smaller investors and keep the funds flowing, Neff says, with some investors buying the entire loan and the others taking a slice – hence the name. 

Interested investors simply browse the various opportunities on the site’s marketplace to find one that suits their tastes. Options range from companies like Pinot’s Palette, a “paint and sip” wine-meets-art business, to Uncle Maddio’s Pizza Joint, a make-your-own restaurant that’s knocking out two million gourmet pizzas a year. Other opportunities are much bigger, like the chance to fund a $560,000 loan for a Sola Salon Studio in Carmel, Indiana with a theoretical 8% return over 84 months, or various opportunities to fund The Brass Tap Craft Beer Bar, a high-growth franchise.

But with ApplePie, investor benefits go beyond merely financial. As part of the franchisor agreement, investors have access to the numbers behind the franchises, with more details on the points of financial pain and a better insight into probability of failure or success and more detailed cash flow projections. The detailed information package is a huge benefit for investors, because the due diligence is much more specific and mitigates the risk while still offering a better than average rate of return.

While the ability to browse fund requests and buy in to businesses at various levels, Neff insists ApplePie is not a crowdfunding platform. “We’re funding the loans regardless,” he says, noting that they only deal with qualified investors, just as they only deal with pre-vetted franchisees. Instead, he says it’s alternative financing rooted in technology with a homespun twist. Each franchise is a local business run by a local business person, which gives investors the option of investing not just in the franchise brand but in targeting local franchises in their own communities because each opportunity is identified by location. In that sense, ApplePie facilitates hyper-local investment while providing better service for small businesses – and everybody shares in a slice of the pie.

Published Thursday, December 17th 2015

Header image credit: Courtesy Apple Pie

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