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Lack of bread spoils his sandwich dream SUB SHOP FRANCHISEE HAS TROUBLE SECURING LOAN

I’ve been on vacation with my wife, Bonnie, and two youngest children, Katie Beth age 11, and Mike age nine. I’m typing this at the Lake San Marcos Resort in San Marcos CA overlooking the pontoon boats, homes, and lake. It’s beautiful outside.

Obtaining Business Lines of Credit in a traditional manner is challenging today. Remember that I’m the guy folks call when “The Bank Says, NO!!!”

When you come to me you start by either buying an hour of my consulting time at $1,000 an hour at or investing 1% of your project, minimum $2,500, maximum $25,000 per project, $100,000 per client for six months service. All large fees of $25,000 or more are credited against success fees earned at funding.

With 10+ years experience at Cash Flow Specialists, Inc. and a total of more than 32 years experience in financial services I may be uniquely qualified to serve you and those whom you choose to refer.

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MAYS LANDING – Loaves of bread bake in the oven. Sliced meats and cheeses are laid out behind the counter. And customers, a whole line of them, order sandwiches, beckoned by the slogan to “Eat fresh.”

Robert Librizzi, standing in an empty storefront last week, likes to imagine that setting. It seemed within his grasp a year ago, when he was expecting to open his own Subway franchise – store No. 44488 – in a strip mall on Harding Highway.

“Soon,” he would tell his friends each time they asked him when it was opening.

But the equipment has not been purchased. The empty shop, a former deli, has not been revamped. Corporate eventually had a sign put up saying the site is available for someone else to develop as their own Subway franchise.

While Librizzi still subleases the space from Subway, he is unable to open his store because he cannot get a loan.

“I never thought it would be this hard,” said the 40-year-old Librizzi, pulling at his baseball cap with “Subway” stitched in green lettering.

In the past year, lending seized up incredibly, forcing borrowers to put more money down for projects and show sufficient cash flow and clean credit histories.

The ability for start-up franchises in general to succeed in this climate is questionable.

PricewaterhouseCoopers LLP forecasts that the number of franchise businesses will fall by 1.2 percent this year, to less than 855,000, while the gross value of goods and services produced by franchisees will decline by 0.5 percent, or $4.2 billion.

So fed up was Librizzi with his inability to secure a lender or qualify for government-backed loan programs that earlier this year, he hung his own sign in the front window: “What stimulus??” (His landlord asked him to take it down after someone complained, he said.)

The Washington, D.C.-based International Franchise Association has voiced its own concern to Congress about stimulus funding. With the estimate that franchise lending will fall 40 percent this year, the association said, more money needs to trickle down to small businesses.

Of the $787 billion approved in the federal economic-stimulus legislation, less than one-tenth of 1 percent is going toward small businesses, said Alisa Harrison, an association spokeswoman.

“It’s great that you’re getting roads paved, but those jobs being created are temporary,” Harrison said. “We want (the government) to promote more lending.”

In Atlantic and Cape May counties, there have been no franchise loans made in 2009 through the U.S. Small Business Administration, which backs loans on behalf of the federal government.

In Cumberland County, two franchise loans have been made through the SBA this year, including one for a Subway, according to the SBA New Jersey District. Three such loans have been made in Ocean County so far.

Way below the economic storm clouds of this recession is Librizzi – a husband and father from Galloway Township who worked as a parts department manager at a slot machine manufacturing company until December 2007.

The company was downsizing. He got the idea to start his own business, he said, and decided it was time to leave his job. Subway, ranked the No. 1 franchise opportunity by Entrepreneur Magazine, would be a new beginning.

Making sandwiches runs in the family, he said: His father and brother have worked at the White House Sub Shop in Atlantic City.

“Subs are in my blood,” Librizzi said.

Opening his own store would cost about $235,000, of which 60 percent is coming from Librizzi and his mother, who took out a home equity line of credit on her house. He still needs the rest financed by a lender.

Librizzi says he went to several big banks and community banks but was routinely turned down. In October, he said, Banco Popular was ready to sign off on his loan, but he was told just days before closing that the bank – which has branches in northern New Jersey – was halting its lending due to the economic crisis.

Librizzi acknowledges that his financial missteps and past credit card debt has affected his ability to acquire a loan. Banks have told him his debt-to-income ratio, a key indicator lenders use to determine risk, was too high.

A debt ratio of 36 percent or less is typically considered acceptable. That means that no more than 36 percent of one’s income is used to pay off any monthly debt payments, such as a mortgage or rent, credit card bills or other existing loans.

David Hanrahan, CEO of Capital Bank of New Jersey in Vineland, said his bank is willing to lend to start-ups, but the applicant needs to be vetted thoroughly. (The bank is one that Librizzi had not tried.)

How much new entrepreneurs can put into their projects themselves, what their income is and whether they have any previous experience in that type of business all come into play, added Tony Altadonna, Capital Bank’s chief lending officer.

“It was always hard for a start-up to get a loan,” Altadonna said, “but without a doubt it was much easier three years ago.”

Subway development agents say that for the most part, they have seen no problems with franchisees getting loans in southern New Jersey because it is a reputable franchise. Subway does not actually do any of the financing, although it works with potential franchisees to determine whether they can operate a store.

Subway agents advise approved franchisees to keep their finances in check and have a continuing source of income before their store opens so that they should not have problems meeting lending requirements.

Librizzi may be an exception. He looked around the vacant storefront where he is still trying to open a business. He plans to contact other banks for help and has tinkered with his business plan to make it more attractive. His goal is to open several stores.

“Right now, one would be good,” he said.

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