Lenders and franchisees have more in common than most people think. 

It is well known that executing the business model of a proven franchise system can substantially increase the chances of success in small business. We also know when that success occurs, it provides wins for the business owners, their staff and local communities.

But sadly, if that business falters or fails, all of those groups lose. 

I've written previously on Finding a franchise your bank likes HERE.

The lender - the often forgotten stakeholder

One stakeholder often overlooked in business failure, or duress, is the lender. 

When loans fall behind or are “written off” lenders lose heavily in capital, time, compliance and reputational  challenges.  

As a struggling franchisee relies heavily on the support of the franchisor to turn things around, lenders also rely heavily on that same franchisor to support their franchisee to help achieve the best outcomes. 

Many franchise systems have established a track record of support and for that reason many franchise systems are earning the right for higher lending amounts and more favourable terms - all this benefits the franchisee as well. 

In short, the lenders are happy to provide a higher level of finance to businesses under a brand where a track record of operating successfully, comfortably making their loan repayments, and strong franchisor support has been established. 

How lenders assess franchise brands

Lenders use a variety of tools, techniques and processes to determine which franchise systems are more attractive compared to others. 

These include but are not limited to the brand’s history, management, competitive landscape, financial performance (of the franchisor and franchisee), network planning, compliance, support, trends in unit openings and performance of the units once open (think transfers, terminations and closures).

The role of franchisee satisfaction in franchise finance

While these and other items are all reviewed and considered, there is one subjective measure that can actually provide some of the most powerful validation on the effectiveness of those processes. 

That measure is the satisfaction and engagement of franchise owners within that network.

So why would lenders care about franchisee engagement and satisfaction? The short answer is that happy (satisfied and engaged) franchisees are successful, meaning they are meeting or exceeding their financial expectations. 

And for the lender, successful businesses make really good customers.

What makes a successful franchise?

Being successful in a franchise starts with being well suited to the franchise system, and that starts with the franchise system knowing;

• Who is well suited, 
• Being able to find and attract enough of those people, and 
• Most importantly, passing on those not well suited. 

Secondly, quality franchise systems position their franchisees for success from day one. 

Apart from the opportunity to operate a model with proven success, new franchisees are well trained by the franchisor in all aspects of the business, and commence trading in a location or territory that has been carefully selected  as part of a disciplined network planning process.

Thirdly, the franchisees are well supported. 

Early warning signs of problems and opportunities to improve business performance are all monitored and acted upon.

These things all maximise the chance of the individual business operating successfully, which in turn generates a financial return that meets or exceeds the expectation of the franchisee. 

Nothing drives franchisee satisfaction (happiness) like the financial return and that financial return is what makes loan repayments and delivers long term profitable relationships for the lenders. 

No wonder lenders like “happy” franchisees!