SBA Franchise Financing | Hammer & Nails Expansion

The prior lender had worked the file for more than six months without resolution. The stall point was consistent across every lender review: the first franchise location had posted operating losses in each of its first two years. Lenders read that as a risk signal and did not advance beyond the income summary.

The first location was a startup franchise in its natural ramp phase. Hammer & Nails operates on a membership conversion model where walk-in traffic, driven by the in-store experience, converts into long-term recurring members. In the early months, a studio must carry the staffing capacity to absorb walk-in volume without delay. The ownership group prioritized that capacity during the build-up phase, accepting higher early-stage labor costs to build the membership base correctly. The result was a clean ramp: by Q1 2025, the first location had reached consistent monthly profitability and recorded its strongest quarter since opening.

Every lender that reviewed this file had read startup financials without reading startup context. The franchise was not distressed. It was stabilizing on schedule. Presenting that distinction in a format a credit committee would accept was the core underwriting challenge.

The second problem was the loan request itself. The amount the borrower had been pursuing was not structured to fund a complete second-unit launch. A construction facility for a premium leased-space retail buildout requires adequate proceeds across construction, equipment, landlord allowance sequencing, pre-opening reserves, and working capital sized to the membership ramp timeline. The original request addressed some of those costs, not all of them.

• Two years of startup franchise losses had blocked prior underwriting review without examination of operating context or the performance trajectory behind those numbers
• The membership conversion model and its staffing cost structure during the ramp phase had not been correctly reflected in any prior lender's cash flow analysis
• The SBA franchise loan request was sized below the actual scope of a complete second-unit launch
• Construction draws required sequencing around a landlord improvement allowance as part of the total project cost structure
• Multi-entity credit support across two operating LLCs and multiple guarantors required coordinated packaging in a lender-executable SBA format

Cornovus Capital rebuilt the credit package from the operating narrative forward. The two years of startup losses were documented in full: the membership conversion model, the staffing decisions made to support early walk-in volume, the operational rationale behind those decisions, and the Q1 2025 profitability result as confirmation that the model had performed as designed. That narrative gave the credit committee a clear and defensible basis for evaluating the first location's performance, not as a failed business, but as a startup franchise that had executed its ramp plan and was now stabilizing.

In parallel, the loan request was rebuilt to reflect what the second unit actually required. Cornovus Capital sized the SBA franchise financing facility to cover the full scope of the buildout: construction, equipment, landlord improvement allowance coordination within the draw structure, pre-opening reserves, and a working capital runway aligned with the time a membership-based franchise unit needs to reach operating stability. The revised facility request came in approximately 35% above what the borrower had been pursuing with the prior lender, sized to ensure not only construction completion but adequate opening capital, carrying costs, and project contingency throughout the ramp period.

The structure was designed for clean SBA 7(a) execution. An interest-only opening period was matched to the early membership ramp timeline, reducing cash flow pressure before recurring revenue stabilized. Multi-entity credit support was coordinated across both operating LLCs and the personal guarantee structure, packaged in a format the SBA and lender could execute without modification.

• Rebuilt the operating narrative around the first-location ramp phase, the staffing model that drove membership growth, and Q1 2025 profitability as the credit validation point
• Reframed two years of startup losses within the context of a franchise ramp plan that had produced a measurable stabilization outcome
• Restructured the SBA franchise financing request to the full second-unit scope, delivering a facility above the borrower's original ask
• Sequenced construction draws to incorporate the landlord improvement allowance within the SBA and lender draw structure
• Structured a 9-month interest-only opening period to protect operating cash flow through the membership stabilization window
• Coordinated multi-entity SBA credit support across two LLCs and multiple guarantors in a lender-ready, SBA-compliant format

The SBA 7(a) franchise financing commitment was approved with proceeds approximately 35% above the borrower's original loan request, providing the capital to execute a complete second-unit launch: full retail buildout, equipment, landlord allowance coordination, pre-opening reserves, and a working capital runway aligned with the membership ramp. The interest-only opening period protected operating cash flow through the early stabilization window, followed by full amortization over a 10.5-year term.

From Cornovus Capital engagement to formal lender commitment, the transaction moved in a compressed timeline after more than six months of prior lender activity had produced no result. The deal had always been financeable. The missing element was a credit narrative that presented the operating reality accurately, and a loan structure built to match the actual scope of the project.

• SBA 7(a) construction facility approved at approximately 35% above the borrower's original loan request
• Complete second-unit capital stack funded: retail buildout, equipment, landlord allowance, pre-opening reserves, and working capital
• Additional proceeds covered opening capital, carrying costs through the membership ramp, and project contingency, all elements prior lenders had not accounted for in the original request
• 9-month interest-only opening period structured to protect cash flow through the membership ramp and stabilization window
• 10.5-year fully amortizing term with SBA 7(a) guaranty
• Multi-entity credit structure executed cleanly through SBA and lender underwriting without re-trades or modifications
• Transaction moved from Cornovus Capital engagement to formal commitment after six-plus months of prior lender stall

Additional financing outcomes are available in our Transaction Highlights archive.