Franchise finance expert Darryn McAuliffe, explains an often little known fact - why banks are not always as keen as you'd think to lend on certain franchises...

Obtaining finance is a crucial part of the journey for the vast majority of franchise and business owners. 

There are certain things that franchise brands can do, to make this process easier and more reliable.

To help narrow your search down and find “Finance Ready” brands, a good starting point is to ask the franchise system you are considering, three key things.

Question 1. 

How have they taken control of improving access to finance?

You want to hear them talking positively around finance and the broader lending community. 

Hopefully they will tell you that they have good relationships with a number of lenders which will give you some choice in who you deal with. Importantly their focus will be on making themselves “Finance Ready” not being critical of lenders, as in complaining about how hard it is to deal with lenders etc.

Question 2

What makes them “lender friendly”.

It is important that franchisors know the type of franchise brand that lenders want to deal with in their behaviours. 

Be encouraged when the brand mentions things like recognising the importance of being transparent, providing good information, getting involved early if any franchisees are struggling, supporting good outcomes for lenders, and communicating early, often and respectfully with lenders. 

These are all about franchisor actions in being a good system to lend to.

Question 3

What type of information do they provide to franchise lenders and how that helps in the loan approval process?

Lenders like information in a language they understand and trust. 

Glossy brochures and fast growth stories (without any performance data) are actually of little value. 

 Information  (independently prepared if possible) covering key risks, testing financial data, evidencing that effective support is being provided to franchisees, backing up financial projections and reviewing  the overall health of the franchise system is of much more relevance. 

Quality franchises that understand, and provide what is important to lenders, will maximise the chances of their franchisees getting  more loans and on better terms. 

In the next franchise buyer newsletter, we will take a look at why lenders care so much about happy and well supported franchisees.