Robert Zarco, founding partner of the law firm Zarco Einhorn Salkowski & Brito P.A. in Miami, is a familiar name in franchise law, particularly as an advocate for franchisees. He has represented a number of plaintiffs in the United States and abroad in legal disputes with such franchise systems as McDonald’s, Burger King, Dunkin’ Donuts, Arby’s and KFC. Zarco recently discussed financing and other opportunities still available to franchisees despite the current economic climate.
What advice do you give franchisees looking for financing in today’s tight credit market?
Look for angel investors [individuals who are looking to invest long term in startup businesses] in unexpected places. Family members, friends and acquaintances are potential sources for funding. If you offer a higher interest rate than what can be currently obtained with treasury bills and certificates of deposit, you might have unexpected success. You may or may not be compelled to secure such a loan by granting a shareholder interest in the business in the event of a default. Alternatively, you could sell a minority interest in the business to a friend, family member or acquaintance in exchange for realization on future profits.
What about turning to other franchisees?
If all franchised locations of a particular brand are doing well, it provides an intangible goodwill benefit to all franchisees. Thus an already established franchisee may be interested in investing in someone else’s franchised business both for the potential return and the benefit to the brand. Franchisees will be even more likely to invest in other franchisees if that loan is secured by a shareholder interest in the business in the event of a default. A polished business plan setting forth the borrowing franchisee’s prognosis of the business and how it plans to navigate this treacherous economic climate will help a franchisee’s chances for financing in every event.
FAST FACTS EDUCATION: Harvard University, bachelor of arts in economics, 1980; Pace University Graduate School of Business, 1982; University of Miami School of Law, 1985BIRTHPLACE: Havana, CubaAGE: 50HOBBIES: boating, sports, traveling and familyPERSONAL: married, five children
Any others?
A truly innovative source of financing might be found in recently laid-off corporate executives. These individuals have lost their jobs, but still have money saved that they may wish to invest. The same could be said about investors who are taking their money out of the stock market and real estate investments and are looking for a different type of investment. If you offer them a better and perhaps more secure and less volatile rate of return on their money than the banks or Wall Street, they might be interested in hearing your plans for your business.
What do you see on the horizon for franchising?
There are potential opportunities for U.S. franchisees to partner with overseas corporations looking to start franchising in the American market. Also, inner-city retailing is one of the few areas in today’s new economy where there is still unfulfilled demand. Franchised businesses have the potential to tap into a significant and underserved market. Some cities even offer businesses incentives such as corporate income and/or property tax credits and incentives for opening in areas where the city is cultivating urban renewal.
