First Internet Runs Off $331M of Franchise Loans
First Internet Bancorp, the Indiana parent of First Internet Bank, is leaving franchise lending, and the borrowers in that book will need new lenders. Its investor presentation lists franchise finance, at $331 million, under "Exited Lines," alongside residential mortgage and healthcare finance, and describes it as growth financing "to franchisees in a variety of industry segments."1 Franchise balances were $450.3 million a year earlier.2 CFO Ken Lovik told analysts on October 29 that the bank expects about $200 million of principal cash flows over the next 12 months from its lower-yielding portfolios, franchise finance among them, to redeploy at higher rates.3
Its SBA lending is shrinking too. In the SBA's public 7(a) file, First Internet Bank of Indiana approved $325.9 million in fiscal 2026, against $658.0 million a year earlier, while approvals across all lenders fell about 8%, to $29.45 billion from $32.0 billion, by our count.4 President Nicole Lorch said the bank has "deliberately tightened our own underwriting standards."3
The third quarter showed what happens when a franchise refinance fails. The bank had put a franchise borrower on a forbearance arrangement that, Chairman and CEO David Becker said, "was intended to give the borrower time to refinance with another lender. Late in the quarter, the borrower's financial condition deteriorated and it became clear that refinancing was no longer viable in the near term."3 The bank moved the relationship to nonaccrual. Lovik put the balance at $6.6 million, and Becker described the borrower as "a multi-franchise owner of different franchises" with outside counsel working to stabilize the business.3 The release puts the specific reserves on that relationship at $2.6 million.2
Bottom line for funders: a bank that is running off a $331 million franchise book and has halved its SBA approvals may be sending small-business borrowers to other lenders, and in our view some of them will ask funders for capital while they look. The question for your desk is whether the owner asking you for money is waiting on a refinance that pays First Internet off, or was turned down by First Internet for an SBA loan.
The limits: the bank has not named the borrower, its brands, its industries or its number of locations, and nothing here identifies them. Nothing the bank disclosed ties this borrower to any industry or to non-bank financing. The bank did not say what kind of lender it expected to refinance the loan; the point about non-bank funders is our reading. It also did not say how many SBA applicants it declined. The bank calls this one relationship, and Becker said franchise delinquencies dropped significantly in the quarter and that the bank believes "there remains a path to repayment."3 Bank-wide net charge-offs fell to 0.82% of average loans from 1.77%.2 The results are unaudited until the 10-Q.
What Alternative Business Lenders Need to Know
Why does a bank leaving franchise lending matter to a non-bank funder?
Because a book runs off through payoffs and refinancings. First Internet's 2025 annual report describes "planned run-off in the franchise finance and healthcare finance portfolios" and says franchise finance loans were placed on nonaccrual during 2025, with specific reserves, and that some were charged off.5 The franchise balance fell by about $120 million in the year to September 30. Each payoff is a borrower who sold, paid down or refinanced somewhere else, and an owner whose refinance stalls can turn to short-term capital while looking for a takeout.
What does the bank's franchise book finance?
A spread of consumer-facing concepts, with an average loan of $633,000. By borrower use, limited-service restaurants are 19% of the $331 million book, beauty salons 16%, snacks and nonalcoholic beverages 14%, indoor recreation 14% and other uses 37%. By brand, the largest concentrations are My Salon Suite at 8%, Scooter's Coffee and Urban Air Adventure Park at 7% each, Goldfish Swim School at 6% and Restore Hyper Wellness at 5%. California holds 12% of the balances, Texas 10% and Florida 7%.1 Those are where the book is concentrated, not a clue to the troubled borrower: the bank has not said which brand or state it operates in.
How have franchise loans performed in public data?
In the same public file, franchise-coded 7(a) loans approved in fiscal 2014 through 2018 have charged off at 9.59% by count against 7.07% for other 7(a) loans, and at 3.36% against 2.82% by dollars, by our calculation, which anyone can rerun.4 Those are SBA-guaranteed loans whose charge-offs the CARES Act's 2020 and 2021 payment relief may have held down,6 so treat the gap as a reason to screen franchise borrowers, not a price for this book.
How do you spot a bank-exit franchise borrower in your pipeline?
Run these checks before a franchise deal reaches pricing, and if you want to prioritize, run the full screen first on applicants operating My Salon Suite, Scooter's Coffee, Urban Air, Goldfish Swim School or Restore Hyper Wellness locations, especially in California, Texas and Florida, because that is where the book is most concentrated, not where the trouble is. The first check finds other funders; the next three show whether First Internet holds a lien on the applicant, made it an SBA loan or turned it down; the rest find any owner waiting on a refinance to pay off a bank.
Look for other funders first: UCC filings by merchant cash advance or factoring companies, and daily or weekly ACH debits to funders in the bank statements. Plenty of shops fund later positions, but if the owner is stacked and its senior bank loan is also in forbearance, we would decline before reaching First Internet's lien.
Pull the UCC filings on every operating entity and affiliate, and look for First Internet Bank of Indiana as secured party. A blanket lien on accounts and proceeds that reaches after-acquired property covers receivables the owner generates later, and because a sale of accounts falls under Article 9,7 the earlier filing generally wins over your later purchase.8
Search the SBA 7(a) file for First Internet Bank of Indiana as lender, and for your applicant's name and franchise brand. It lists the borrower, approval date and amount, and whether a loan was paid in full or charged off.4
Ask whether the applicant applied for SBA or bank credit in the last 12 months, with whom, and why it was declined. The 7(a) file lists only approved loans, so a First Internet decline leaves no trace there.
Find the recurring ACH debit to the senior lender in the bank statements. A payment that shrinks, changes or stops is the first sign of a forbearance or a modification.
Ask for the senior lender's latest statement and any forbearance, extension or modification letter. A term loan in forbearance is a senior creditor waiting to be paid.
Ask for any default, cure or termination notice from each franchisor. Franchise agreements can carry default triggers tied to closures, unpaid royalties or other debts, and a termination ends the revenue you would be buying.
Check the Secretary of State record for every operating entity and affiliate: active status, officers and dissolved entities. A multi-franchise owner often runs each brand or location through its own company, and a dissolved one can still carry debt. Ask how many locations the owner ran a year ago and how many it runs now, by brand.
What to watch
First Internet's fourth-quarter franchise balance, against $331 million at September 30, for the pace of payoffs.
The third-quarter 10-Q, for nonaccrual loans by portfolio and any modifications to franchise borrowers.
Other banks with shrinking franchise books describing forbearance or refinance-dependent workouts.
Our Opinion
For most funders reading this, the answer is to stay out. A franchise owner whose bank term loan is in forbearance needs a lender that can hold term debt and pay the bank off, such as an asset-based lender, a franchise-focused debt fund or an SBA lender. A merchant cash advance, factoring line or revenue-based advance does not solve that maturity. It adds a daily or weekly payment to a business that could not refinance, and at an average loan of $633,000 the owner who calls a funder is asking for working capital to carry the business until a refinance closes, not for the payoff itself.
The bank's cushion is not yours. The $2.6 million reserve and Becker's "more than reserved for that loan" protect the bank's balance sheet, not a funder standing behind it.3 In our view, a funder that advances to this owner is competing with the bank for the same cash.
Our position: unless you are the refinance that pays the bank off, decline the franchise owner whose senior term loan is in forbearance or waiting on a takeout, and refer the deal to a term lender. If the deal came through a broker or ISO, tell them why, so the owner reaches a lender that can take out the bank and the broker keeps sending you deals you can fund.
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GBank Financial Holdings, the Las Vegas parent of a bank that calls itself "a top national SBA lender,"9 said on October 28 that nonperforming assets excluding government-guaranteed portions reached $28.8 million, or 1.97% of assets, at September 30, up from $21.3 million at June 30 and $10.4 million a year earlier. SBA originations were $171.7 million, up from $131.4 million in the second quarter, and the bank is holding $19 million more guaranteed loans for a fourth-quarter sale. CEO Jeff Newgard pointed to "strong SBA production and gain-on-sale margin."10 In the SBA's 7(a) file, GBank's fiscal 2026 approvals rose to $539.3 million from $526.5 million, on fewer loans, while First Internet Bank of Indiana's fell by about half, by our count.4
Bizcap, a non-bank small-business funder founded in Australia, announced on October 27 that it closed a $175 million credit facility with a U.S. institutional credit manager it did not name.11 Brean Capital was sole placement agent, and the capacity will support "increased originations and continued product expansion across North America."12 Its U.S. arm is NewCo Capital Group, rebranded as Bizcap US in July, which has funded small businesses since 2019. Bizcap CEO Albert Gahfi describes its role as "helping brokers and ISOs deliver fast, flexible funding solutions to their clients."13 Its U.S. launch release offers a revolving line of up to $2 million and a product priced at "a factor rate from 1.02 for the first four weeks," for businesses with at least $20,000 in monthly revenue.14
The Federal Open Market Committee held the federal funds target range at 3-3/4 to 4 percent on October 28 by a 10 to 2 vote. Lisa D. Cook and Beth M. Hammack preferred a quarter-point increase.15 The committee raised the range by a quarter point in September.16 The prime rate was 7.00% on October 27,17 and First Internet's fourth-quarter outlook assumes another 25 basis point increase in December.2
Sources
1 First Internet Bancorp | Third quarter 2026 investor presentation, Form 8-K (Oct. 29, 2026)
2 First Internet Bancorp | Third quarter 2026 results, Form 8-K Exhibit 99.1 (Oct. 29, 2026)
3 The Motley Fool | First Internet Bancorp (INBK) Q3 2026 earnings call transcript (Oct. 30, 2026)
4 U.S. Small Business Administration | 7(a) and 504 FOIA loan-level data, FY2010 to present, as of Sept. 30, 2026
5 First Internet Bancorp | Form 10-K for the year ended Dec. 31, 2025 (filed March 11, 2026)
6 Legal Information Institute, Cornell Law School | 15 U.S.C. § 9011, Subsidy for certain loan payments (CARES Act § 1112)
7 Legal Information Institute, Cornell Law School | Uniform Commercial Code § 9-109, Scope
8 Legal Information Institute, Cornell Law School | Uniform Commercial Code § 9-322, Priorities among conflicting security interests
9 GBank Financial Holdings | Third quarter 2026 earnings call announcement, Form 8-K Exhibit 99.1 (Oct. 19, 2026)
10 GBank Financial Holdings | Third quarter 2026 financial results, Form 8-K Exhibit 99.1 (Oct. 28, 2026)
11 Fintech.ca | Bizcap secures $175 million to expand North American funding (Oct. 27, 2026)
12 ABF Journal | Bizcap secures $175MM credit facility (Oct. 28, 2026)
13 ABF Journal | NewCo Capital rebrands to Bizcap US (July 8, 2026)
14 Bizcap via PR Newswire | Bizcap US launches, bringing fast, flexible funding to SMBs (July 14, 2026)
15 Board of Governors of the Federal Reserve System | Federal Reserve issues FOMC statement (Oct. 28, 2026)
16 Board of Governors of the Federal Reserve System | Federal Reserve issues FOMC statement (Sept. 16, 2026)
17 Federal Reserve Bank of St. Louis, FRED | Bank prime loan rate (DPRIME), Oct. 27, 2026 observation
