Loan Broker Cuts Ties with Cuppy's Coffee
Jones had explained Funding Solutions' situation saying, "Until recently, stores were being opened on a regular basis. Last month we heard about problems with construction contracts not being fulfilled. At that time we called two of our clients, and researched the postings on Blue Mau Mau." He said after awhile they had no reason not to believe that some of the comments were well-founded. "As with the franchisees and banks, we have not been able to get any responses from Cuppy's either, and when that happens it becomes impossible to try and resolve any problems," he said.
Yesterday, Funding Solutions reaffirmed their position and said they had now sent out a letter of resignation to Dale Nabors, Cuppy's new owner and CEO of almost five months. Shortly after, they sent another letter to their franchisee clients informing them of its action against the franchisor and offering recommendations. Funding Solutions provided Blue MauMau copies of the letters.
Dated September 3, 2008, the first correspondence to Dale Nabors stated, "Regretfully, we will no longer be able to assist with placing financing for prospective Cuppy's franchisees." Jones listed his reasons for ending the relationship:
- The lack of communications when desperately needed to support the transaction with existing borrowers and the banks.
- The concern that bank disbursements are not being used for the borrower's project. In other words, bank funded the project but the construction and equipment have not been delivered.
- Continual franchisee feedback of no communication to their request for needs.
- Participating banks are no longer willing to fund the Cuppy's franchise.
In closing, Jones wrote, "We will be offering our existing Cuppy's applicants any assistance they request; however, the lenders have made it clear they can no longer fund Cuppy's projects. Jones said he sent copies of the letter to all the banks involved.
The second letter to the Funding Solutions franchisee applicants who had bank commitments and needed to find replacement financing was sent out, dated September 8. The letter is as follows:
"You may have received a letter recently from your bank indicating concern with the recent adverse conditions (material changes) with Cuppy’s Franchising, Elite Manufacturing and Medina Management. This has nothing to do with you, but rather a bank decision relating to Cuppy’s that has occurred over the last month.
At this time, we don’t have a complete understanding of the status of Cuppy’s. We recommend you contact Cuppy’s and the bank to determine a status for your project/loan.
Several franchisees have asked if Funding Solutions is affiliated with Cuppy’s. The answer is “no”. Funding Solutions is an independent business devoting virtually 100% of its time to the franchise industry. We currently work on a regular basis with franchise applicants for approximately 10 systems. We are contractually obligated directly to you and have no affiliation with any system.
Please call or email with any questions. Funding Solutions remains ready to assist you with the restructuring of your loan, if needed."
Funding Solutions Responds to Blue MauMau Postings
In an attempt to put to rest some of the bedlam on Blue MauMau with comments posted by readers, Jones explained his company's structure. He wants people to know that Funding Solutions works closely with all three participants in a SBA loan transaction—the franchisor, the franchisee and the bank or lender—but in the end their client is the franchisee. Jones said they knew the banks were trying to put together some answers to the existing problems with Cuppy's in getting construction projects completed for franchisees, but Funding Solutions never got clarification. "In order to get clarification, we had to tell the franchisees to please contact the bank and Cuppy's. Finally it got to the point where we just couldn't service anybody the way we should and couldn't get anything accomplished," he said.
What is important for people to know, according to Jones, is that lenders disburse according to contracts, so even if Cuppy's and its entities have all these loans available, approved and/or closed, Nabors hasn't received funds for a lot of things currently out there. He states, “Most banks disburse on a percentage of completion, or according to a draw agreement. It is not as clear and simple as saying that Dale has X number of loans that have closed, so he has X number of dollars. From their point of view, it is the disbursement of project funds. Disbursement happens normally when construction companies and vendors submit invoices.”
"Virtually, none of these loans have been advanced if the construction has not been completed," he explained. But he said it is up to the banks how they handle it. "We think some banks, in particular, did fund the entire construction amount."
But Jones also wanted to clarify that Funding Solutions has no control over what and how the banks disburse to vendors. "We are not in the middle of those transactions," he said. "When the loan closes we're basically done with that. We don't deal with any of the disbursements." He said, "A big part of the problems going on, as we see it, is that Cuppy's, Elite and SBT were disbursed funds that weren't applied to the projects that they were disbursed for."
Funding Solutions does feel that it was a good move on Nabors’ part in moving from one contractor to another, explained Jones. “Nabors was in the process of changing over to a national contractor that had a good, strong reputation that was willing to complete the projects. They thought the banks would then be on board with that change.”
Jones continued, "There is no comparison between it and SBT. It's like night and day. It appeared to be a good management decision Nabors made on behalf of franchisees, himself and everybody else."
Funding Solutions Defends Its Good Reputation
Jerry Jones and son Randy, also co-partner and owner, adamantly defend Funding Solutions, saying it has a good reputation and they have never had the kind of accusations posted in the reader comment areas and forums on Blue MauMau. "People stating that we are hiding documents is very disturbing, we have never covered up anything. We would invite anyone to come to our office and look," Jerry Jones offered.
Jones Sr. said their main goal is to get people in business. "We work on their behalf and to a fault we probably work too hard on their behalf. I think anybody who works with us would probably make that same statement, that we have done everything to help them."
Jones feels that what is happening in franchising is symptomatic of what was going on with the housing market. He explains, "The banking industry at times was a little bit too aggressive in making loans and when times got bad they were finding out that some loans were too aggressive." He said their underwriting standards have changed dramatically in the last nine months.
He concluded by saying, "If the banks had been more conservative in the past we probably would not be seeing the problems we are having today."
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Related reading:
Official Response from Funding Solutions, LLC Regarding Cuppy's
