Franchisor Support Vital In Dealing With Nervous Lender

Franchisor Support Vital in Dealing with Nervous Lender

Reprinted from Advanstar
Hotel & Motel Management Magazine
November 2, 1987
By Jeff Wilder
Wilder Group, L.L.C.

I'd like to share a story with you. It involves a weak lender, a franchise hotel and a caring person, and it highlights an important aspect of the franchisor/franchisee relationship that is seldom brought to light: the concept of franchisor as friend and partner.

Holiday Corp.'s district director system is an excellent one. Conceptually, the "d.d." is the franchisor's liaison to the owner whose property is in the d.d.'s area. In a nutshell, the d.d.'s job is to monitor the hotel in a way that meshes the franchisor's requirements with the property's success. The d.d. advises, assists, cajoles and befriends the franchisee - often in ways that stretch his job description to the limit.

Holiday Corp.'s district directors are the backbone of its day-to-day relationship with franchisees. A d.d.'s job is extremely important - and often takes unique turns. Here's an example:

Early this year, I took over the management of a 100-unit Holiday Inn in western Pennsylvania. The hotel is mortgaged with a financially weak bank that recently made a $2 million long-term loan to the property at a very favorable rate of 9.75 percent. The loan was committed late last year, shortly before new management took over the bank (which is currently battling losses resulting from several bad loans).

Looking To Recoup

A portion of the loan is being used to refurbish the hotel. For months, the lender has dragged required payments to people involved in the refurbishment project - thus causing several project delays. The bank's goal, of course, is to quickly recoup the $2 million, help rebuild its eroded capital-base, and reloan the money at a higher rate.

It's a classic example of why you shouldn't borrow from a weak lender. As a colleague of mine so eloquently puts it, "I'm very particular about who I borrow from."

Several weeks ago, I received a call from an officer of the bank. He expressed his "serious concern" regarding the process of the hotel's modernization project.

The banker hinged his concern on a letter sent by Holiday Corp., which extended the acceptable completion date for the inn's modernization by three months. The banker interpreted - rather, misinterpreted - the letter to mean that the franchise was in jeopardy due to slow progress, thus putting his loan's security in jeopardy.

Had he simply picked up the phone and called the writer of the letter, he would have discovered that the extension was granted because Holiday Corp. was pleased with the project's progress.

Instead, I received a bullying phone call demanding that I make the 300-mile trip to the bank to "explain the situation."

Since my conversation with the banker indicated a real potential for a loan acceleration, I realized the importance of asking Holiday Corp. to give the hotel a vote of confidence. Frequent calls to Dennis Byrne, Holiday's district director for western Pennsylvania, ensued. He immediately understood the situation and responded by writing a strong letter supporting the property, the franchisee and the modernization project.

Rash Steps Avoided

Byrne followed up with a phone call to the bank on the franchisee's behalf. This was very important: The lender needed his confidence in the project bolstered. Otherwise, he may have taken rash steps that could have cost months of wasted time and thousands of dollars.

The personal attention of a caring district director was vital in this situation. My hat is off to Mike Rose and his staff for having created such a sensitive program.

I hope this story points out that this kind of help exists in our industry. In the rocky times that surely lie ahead, awareness of such support will benefit all of us.