Which is the best bank to get your franchise business finance from?

In my experience of being part of, and closely observing the franchise sector for 20 years, there can be a lot of bluster by banks about how much they are committed to franchise lending, but the reality is can often be quite different.

You can see more we've done on your franchise finance troubles HERE

And yes, there are many non-bank lenders at the ready to assist, and these providers seem to grow by the day, but a focus on what the majors, ANZ, NAB, CBA and Westpac are up to, is a great place to start.

A panel of 'approved' franchises

Banks have historically had a ‘panel’ of approved brands that have been through some form of continual rigorous assessment. 

This assessment would determine if they are suitable to be effectively ‘rubber stamped’ to be provided a baseline of equity reduction requirement from the borrower.

From all of the conversations I’ve had, and observations made, the ANZ has clearly maintained its mantle as the most consistent and largest provider of franchise lending. 

Prior to that, Westpac was very much in that position several years ago.

The big four banks' commitment to franchise lending

The banks don’t openly advertise how many franchise brands they have included on their ‘lending panel’. Our market intelligence tells us that these are the approximate numbers of franchise brands that each of the big four banks are actively lending to as part of their respective panels / programs;

• ANZ - 70-80 brands,
• CBA - 20-30 brands,
• Westpac - 20-30 brands (has significantly reduced their brand participants),
• NAB - 20 -30 brands.

ANZ Leads the way in franchising

ANZ has the most brands on a franchise lending program by a fair margin, and have consistently done so for some years now. Arguably, they are also the most actively engaged in the sector with a commitment to events and presence.

However, the list above does need some context, as bank appetite to lend to different industries in the sector, and across jurisdictions varies from time to time.

“All four major banks maintain a franchise banking capability. With most investing in their capability and infrastructure for franchise lending over the last 12 months”, according to Darryn McAuliffe, CEO FRANdata.

So potentially, the current approved panel of brands on a bank's lending book for franchising, has the ability to increase significantly in a short space of time - if they choose to.

Franchise brands contributing to a funding problem

Franchise brands themselves play a key role according to Darryn McAuliffe, on whether their franchise owners and prospects are going to get finance.

“Overall, many franchisors continue to provide an inadequate level of information to support the timely assessment of franchise lending transactions for their networks.”

“Sometimes lenders have experienced a lack of support from franchisors in not standing behind their franchisees or their brands, when outlets fall into financial trouble.

And as I always say, banks have long memories.”

Nearly 1,000 franchise brands without ‘bank panel’ support

We have to wonder though, with more than 1,000 brands in the Australian franchise sector, why are major lenders choosing to pass over most of these brands?

Darryn McAuliffe, gives three basic reasons why a bank would not undertake more funding opportunities to the franchise market.

1. A bad prior experience (loan right-offs, or a lack of support from a franchisor when needed),
2. Not enough opportunities on the horizon (few lending opportunities),
3. Not enough information to be comfortable with the brand.

Bank franchise equipment finance

For Len Ferguson, founder of Finn Franchise Brokers, and Director of Diggermate, he acknowledges the dominance of ANZ.

“But, from our perspective in Diggermate, the NAB are really hungry on the equipment finance side of things, which is our key need, and that often then leads into broader franchise lending.”

“Westpac has gone cold on franchising. It seems that they have disbanded their franchise team as there is no franchise related person that I know of any more that I can speak to.

CBA just doesn’t focus on it. They’ll tell you they do, but they don’t.

All banks will talk a big game, but the complexity of getting involved in franchise finance makes it very challenging in reality.”

And what would Len like to see from the banks going forward to help the sector in recovery?

“I’d like to see them opening up the finance to make it a lot easier for people to get into business. But in reality, I know they have varying oversight pressures to deal with as well.”

The bank of mum and dad

Grant Garraway, franchise development consultant, has been in the space for 30+ years, and seen cycle after cycle in the economy from a franchise lending perspective.

Grant has a totally different take on it, and in particular notes the asset growth conditions in a low interest environment that we are experiencing.

“The number one bank for franchise purchases under $250k is the bank of mum and dad - family finance. Either directly, or via security against an asset (house).”

“The next most common thing I see is people in their late 30’s to 50 years old or so, with good equity in their home, and go to a second tier bank, and re-finance both the house mortgage and the business purchase at home mortgage rates.

And in so doing, virtually eliminating the bank ‘approving’ the business funding in the traditional way.”

And perhaps Grant’s final words are most telling to the changes happening in franchise business finance.

"The traditional way to get finance for a franchise was through a franchisor's relationship with a bank. I’m seeing the least amount of these types of relationships evident now, than in my 30 years in franchising.”