For prospective franchisees access to finance is likely to remain a challenge in 2023, with some good and some bad news...

The good - banks' appetite

The good news is the lending community is increasing its overall investment and desire to lend to franchises. That is great news for quality and attractive franchise systems, especially if they have already established a track record.

The bad - selective lending

The bad news is those same lenders are becoming increasingly selective on who gets franchise funding. This is a problem for those franchise systems that have a poor track record or have trouble convincing lenders of their quality. 

Did you know?

In reality, many franchise systems are actually unattractive to lenders due to: 

• Unsatisfactory prior loan experiences (franchisees losing money and franchisors not doing enough to reduce or eliminate those losses),
• An unproven business model (lack of confidence in the recruitment of franchisees, locations of businesses and financial outcomes for franchisees),
• The provision of weak information being provided to lenders,
• A lack of opportunity (not enough new lending opportunities of the right size), or
• A poor first impression (from either the franchisee making the loan application or the franchise system itself).

How to spot franchises that are unattractive for finance

As a prospective franchisee, seeking finance to assist in completing the purchase, there are a few important questions that can be asked of franchisors. 

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

Firstly, how have they taken control of improving access to finance, and secondly, what makes them “lender friendly”. And finally, importantly, what type of information do they provide to franchise lenders and how that helps in the loan approval process.

In the next franchise buyer newsletter, I’ll go into more detail around those three key areas mentioned above to help you understand more about the role these play in helping you secure finance for a franchise.