Denise Thomas, Co-Founder and CEO, ApplePie Capital
Denise Thomas, Co-Founder and CEO, ApplePie Capital

If it seems as though franchises are springing up on every corner, it’s because they are.

The Franchise Business Outlook 2017, published in January by the International Franchise Association, predicts that franchise growth in 2017 will exceed the GDP as it did in 2016. According to the report, the number of franchise establishments grew 1.7% in 2016 and will increase 1.6% in 2017. Franchise employment was up 3.5% in 2016 and is forecast to grow 3.3% in 2017, while franchise output grew 5.8% in 2016 and will grow 5.3% in 2017.

Franchises provide entrepreneurs with an established brand name and a playbook to manage operations. But, unlike being a branch manager for a large chain, owning a franchise demands that the entrepreneur come up with a substantial amount of capital — between $200,000 and $350,000 — to cover start-up costs, construction and the licensing fee.

For an entrepreneur, that can be a sizable sum, yet it falls beneath the lending radar of most banks. To fill this specific lending niche, Denise Thomas founded ApplePie Capital, a fintech company that provides financing to prospective franchise-owners and current franchisees looking to expand their businesses.

How Do Franchisees Find Funds?

How do entrepreneurs generally come up with the initial funding?

“Some of them finance it out of their own equity,” Thomas explains. “Others get SBA loans. Sometimes they roll over 401Ks, and there are some tax advantages to doing that. And some can get bank financing if they’ve been a small business person for a few years or if they have enough net worth that they can walk into their local bank and do that.”

But Thomas saw that those avenues didn’t work for everyone.

Thomas grew up in the Silicon Valley, but unlike other fintech lenders, her background is in finance, not just technology. Over the past 20 years, she founded three other companies and held executive and management positions with SharesPost, Healthiest You, Navigenics, LesConcierges, OffRoad Capital, Onyx Microcomputer, Post Communications, Kao Infosystems and National Semiconductor.

“I grew up in the Silicon Valley back when it was just traditional venture capitalism,” she recalls. “The thing that has really been a thread throughout my career is the supply-and-demand-based market making where you have buyers and sellers that don’t know each other and wouldn’t know how to get together.”

Borrowers Approved by Franchisors

In many ways, ApplePie functions like a matchmaker, connecting those investors with borrowers. Like other fintech lenders, the company has an online application and a quick response time — not 24 hours like some lenders, but applicants can receive a commitment letter within five days. The big difference between ApplePie’s applicants and other borrowers is they have already been screened by the brands and approved for a franchise.

“It’s really a growth engine for [franchisors],” Thomas says. “You know what happened to small business lending back in 2008 with all the regulation. It really changed how banks could interface with that kind of borrower. And a transaction below $5 million was a lot less interesting.
“The SBA program was created [by the government], but it only services about 20% of the market, and it’s really a hard process for people. So it was ripe for disruption and doing things differently. It was so clear that this was something that could apply to small business, but you need a scalable model because small businesses are fragmented.”

Due diligence is difficult when evaluating small businesses, she adds, because there is no way to determine if the businesses would succeed or how much revenue a store should generate. Lending to a franchise eliminates many of these unknown factors.

“So, in my assessment, having been a franchise investor for the last 25 years myself on the equity side, it was clear to me this was the blueprint for business,” Thomas says.

Partnerships with the Brands

ApplePie partners with popular national brands like Dunkin Donuts, 7/11 and Hand and Stone that already have successful track records, eliminating a lot of the guesswork. While franchise websites offer an open invitation to apply, they grant their licenses selectively, choosing both the applicants and the locations they feel are a match for the brand. By partnering with the brands themselves, ApplePie receives a steady stream of pre-approved entrepreneurs looking for financing.

“We sign up the brands and, through the brands, we receive qualified franchisees who already own units and are building more or are new to the system and want to build their first one,” Thomas explains.

ApplePie itself is funded by hedge funds, family offices and “high net individuals,” she says.

The application process is entirely digital, and Thomas credits the technology with the company’s success.

“They [borrowers] come to our site and, if they are working with an approved brand, they are fast-tracked through a loan process and application. If they are not working with an approved brand, we let them know we are not working with that brand at this time,” she says, and for the latter group, the process may be a bit slower.

“They are assigned to a loan officer who works with them as they submit information. We analyze the information; it goes through our originations team. They package that for credit. The credit team reviews that and processes the loan.”

Like other fintech lenders, ApplePie has developed a proprietary algorithm to vet and qualify borrowers.

Within five days of application, ApplePie can provide a commitment letter for the loan, telling the borrower what is required to close the loan. The loan can close as quickly as 30 days, depending on whether the borrower can obtain required documents, like leases. Thomas says the company can also provide a quick “no” which allows the borrower the ability to move on to try another lender. She adds that if the company can’t help the borrower, they will offer some other options.

Joining the Boys’ Club

Thomas is the rare woman leading a fintech company. After developing the concept, she brought in co-founder and COO, Jeff Pelletier, who was her CEO at a company 20 years ago, and Jeff Zinn as head of capital markets.

“I jokingly said in my first year of business that it was 10 guys and a girl,” she says. “I would have loved to hire more women and particularly have them on my executive team. But I look at who is best for my position. It’s not about gender.”

She adds that several women have invested in the business, and she is happy that more women are coming into the finance industry. “We’re about 20% women now, and I have a goal to get that number up.”

For Thomas, running ApplePie gives her an opportunity to “use all my muscles. It’s a culmination for me of being able to apply a lot of what I’ve done in a way and to an industry that I love serving. I like that businesses are created. Every employee that comes to work here knows they’re creating jobs. And you’re working with everyday entrepreneurs.

“We who sit here in Silicon Valley think we’re the innovators. But these are some of the best brands in the country, created through the franchise model, and it’s inspiring to listen to their passion, their stories and to serve them. I like serving that everyday person who is trying to change their life.”

So why ApplePie?

Zinn, a longtime colleague of Thomas’s, explains that before the company launched, they were sitting in Thomas’s kitchen talking about a name.

“She wanted it to be easy to apply for a loan,” he recalls. “And what could be easier than ApplePie?”