SBA Loans are Pretty Much the Main Vehicle (with Shay Kleinschmidt) | Ep. 19

Funding is the fuel that powers the franchise engine. Yet, for many new business owners, securing capital feels like a black box. In this episode, host Sean McKay sits down with Shay Kleinschmidt, the Vice President of Lending at FranFund. Shay shares her journey from a legal background to becoming a leading voice in franchise finance.

They discuss the realities of SBA lending, why your local bank might be the wrong place to go, and the critical importance of vetting a brand before you sign. Whether you are a first-time franchisee or a franchisor looking to understand the lender's perspective, Shay offers practical, no-nonsense advice.

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What You’ll Learn

1. The "Craigslist" Origin Story: How Shay pivoted from the legal field to franchise lending through an unexpected job posting.
2. The 4 Buckets of SBA Approval: It is not just about a credit score. Learn about equity injection (10-30%), post-close liquidity, collateral, and the hidden "fifth bucket" - character.
3. Why Local Banks Often Fail Franchisees: Shay explains why walking into your local branch can lead to wasted time and why specialized lenders are crucial for startup franchises.
4. The Dangers of Rapid Growth: A warning for emerging brands. Selling units too fast without strong unit economics can damage your reputation with lenders.
5. Due Diligence is Non-Negotiable: Why you must read the FDD and, more importantly, call existing franchisees to ask the tough questions about cash flow and support.

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Episode HighlightsFrom Craigslist to VP

Shay’s entry into the industry wasn't traditional. In 2012, after layoffs in the legal recruiting sector, she found a Craigslist listing for FranFund. She landed the job, bought "SBA Lending for Dummies," and learned the ropes from the ground up. Today, she manages the entire lending department and executive initiatives.

The Mechanics of the SBA Loan

There is a misconception that SBA loans are risk-free for banks. Shay clarifies that the SBA only offers a guarantee (essentially an insurance policy). The bank still assumes risk and must comply with strict rules. If a borrower defaults, the bank incurs a loss. This is why they require collateral and "skin in the game" from the borrower.

The "Character" Variable

While financials are black and white, lending is still a human business. Shay emphasizes that banks do not have to lend to you. How you present yourself, your organization, and your responsiveness matter. A borrower with messy paperwork or a difficult attitude can derail a deal, even with strong financials.

Lender Diversity Matters

Shay recounts a story in which a prominent lender abruptly exited the franchise space, leaving many deals in limbo. This highlights the importance of not putting all your eggs in one basket. Both franchisees and franchisors need a diversified network of financial partners to avoid disruption.

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About the Guest