Banks and lenders are ready to support new franchisees and franchising growth, according to a lending summit in Sydney last week attended by franchisors and representatives from the lending community.
However, there’s a caveat.
Darryn McAuliffe, CEO of Frandata Australia, which organised the event, said lenders are now more discerning.
“With franchise loan books seemingly in good shape lenders are actively seeking more franchise business,” McAuliffe told Franchise Executives. “However, this continues to occur on a somewhat selective basis. To be offered, or maintain a place on a lending program franchise systems need to provide good information, show good performance and demonstrate strong support of any underperforming franchisees”.
Despina Kathestides, head of franchise banking at NAB, confirmed the bank has a definite appetite for franchising.
“We’ve grown from 10 to 27 accredited and preferred brands and we’re continuing to grow the number. We have executive sponsorship to grow in this sector, as a separate specialisation with a centralised team that does franchising. NAB also has trained and accredited bankers out in the regions for customers,” Kathestides said.
ANZ is also focused on the franchise sector, said Fran Babic, head of professional services.
“From an SME perspective, the franchise sector in Australia is an extremely important contributor to the economy and one we’re proud to support.”
Babic said the ANZ is “aligned and committed” to franchising but has streamlined its lending approach.
“We now have a more specific and deliberate approach with three defined segments that allows us to specialise in these industries and tailor our customer support,” Babic revealed.
ANZ’s three segments are QSR (quick service restaurants) / food and beverage, wellness/lifestyle/retail, and business /general services.
“We are also supporting the lifecycle of businesses, from greenfield through to multi-site operations.
“We continue to be mindful of the broader economic environment and will treat every banking proposition on a case-by-case basis.
“Looking ahead, we’ll be keeping a close eye on interest rates, but we remain cautiously optimistic about the franchise sector,” Babic said.
Judo Bank, which predominantly banks franchisees, is also keen to support growth in franchising.
Director of relationships, Lisa Armstrong, told Franchise Executives “We see a lot of opportunity in more specialised areas and the risk-return balance in franchising makes sense.”
Challenges ahead
Armstrong said although there are good opportunities in the sector there are signs of stress, particularly for franchisees in industries tied to discretionary spending industries.
“We are also watching the ATO situation more closely, with more ATO arrears among franchisees.”
Armstrong predicts there may be more capital contributions required in certain industries impacted by economic conditions.
“We’re not scared off those industries, we might be more prudent,” she said.
Kathestides agreed it is a challenging time for new franchisees.
“Consumer confidence and discretionary spending is quite low, interest rates and inflation are high. All of those things combined makes it challenging for a new franchisee. But if they can enter now and weather this storm then they’ll do really well,” she said.
What franchisors can do
McAuliffe had some advice for franchisors. “One challenge many franchise systems may have is providing (or knowing) the type of information that is relevant to lenders and how that should be provided.
“For example, aggressive or strong growth in new openings may well create some or concern or caution on the part of lenders. Most lenders will generally be more comfortable with a steady, disciplined and sustainable growth rate,” he said.
“For franchise systems experiencing or targeting strong growth, expect the lenders to focus heavily on the financial and human resources available to support that growth and the disciplines with which it is being pursued.”
Kathestides said franchisors wanting to get on to NAB’s panel of franchise brands must show the strength of their brand.
“They need to demonstrate they have the financial capability, and willingness, to help support franchisees through a storm,” she said. “A successful franchise is one where franchisees make money as well as the franchisor. Franchisors need a healthy system, with a great brand reputation.
“If they do all those things right, that will help their franchisees’ chances of getting lending support, and will help them perform once they are in business.”
New franchise brands also need to establish brand equity, which is at the heart of franchise lending.
“We do place a value on the brand equity, essentially that’s what we’re lending to. New franchisors who don’t have brand equity need to build this over time, and demonstrate what they are doing to build a really strong franchise system.”
Marcel Klaassen, general manager, business banking channels, Commonwealth Bank told Franchise Executives, innovative product development plays a crucial role in meeting customer preferences and maintaining an evolving brand presence.
“Additionally, investing in sustainability is becoming increasingly important. Franchisors who prioritise these aspects are better positioned to meet the growing demands of their franchisees,” Klaasen said.
Leading franchisors excel in financial management within their systems and operations, he added.
“By prioritising cash flow and working closely with suppliers, they balance liquidity, inventory, and working capital, driving continuous growth. This approach shapes their partnerships, systems, and tools whereby CommBank recognises the value the franchisor brings.”
Klaasen said CommBank is “proud to support franchises and foster growth in the franchising market”. The sector has a promising future, he said.
“In a dynamic market, the achievements of Australian franchisors highlight the vitality of the sector. This success reflects the value that CommBank Business Banking sees in the industry,” Klaasen said.
