If your franchise brand doesn’t yet have accreditation with any of the major banks, it’s probably on your list of goals.
Access to finance is a constant theme in the franchise sector and anything that makes it easier for a franchise buyer to find funding for their purchase is to be welcomed.
The process does differ according to the bank but it is likely to involved meeting with a specialist franchise banker who will want to understand your franchise model, the operations, and your ongoing strategy for expansion. Legal documents will need to be reviewed – so you will need to have an up to date disclosure document and franchise agreement.
The aim is for the bank to create a package that can be served up to any franchise buyer across Australia, offering them funding of up to 70 percent of total costs, secured against the franchise business.
Bank accreditations are attractive propositions for everyone – banks are confident in the franchise model, the franchisor has a drawcard for franchise buyers, and potential franchisees can more easily source finance than they can with a non-accredited brand.
But in truth just a minority of brands are accredited. So if you want to position your brand as a top quality system ripe for accreditation, what should you do?
Darryn McAuliffe is CEO of FranData and a former banker. He suggests the following four steps:
1. Get the right bank
Find and connect with the right bank. Some banks will be actively growing their franchise lending book exposure – use your industry network to find which banks, and then contact the person responsible for executing the strategy.
2. Identify bank criteria
You’ve found the bank, now you need to find out what the bank is looking for in accredited brands. It’s important not to confuse standard, basic information such as number of units and length of time franchising with the real issues of what makes a franchise brand an appealing option for the bank. This is likely to include good business development opportunities, sound loan quality and a strong franchisor.
What is a strong brand?
- An established and respected business model and product offering
- A solid financial position (sound earnings, profitability, regained earnings and liquidity)
- Management (experienced, stable, track record of strategic success)
- People (satisfied and engaged franchisees, head office and support staff)
- Effective franchisee recruitment (disciplined growth, low churn rates, proven process or approach to recruiting quality franchisees)
- Effective site selection
- Well trained and well supported franchisees
“For a lender the ultimate evidence of a strong brand will be how few units become problem loans and what the franchisor can and does do support any that do become a concern for their lender,” says McAuliffe.
3. Share information
It sounds obvious but you need to provide the right information. “Ensure that all requested information is provided in a prompt, complete and balanced manner. Lenders do not expect everything to be perfect. Holding back or avoiding certain information will only create doubt,” advises McAuliffe.
On the other hand, if you show you can identify and address problems lenders are in the future more likely to have confidence in the brand.
4. Build your reputation
Build your reputation as a lender-friendly brand. If you have a new or emerging brand, turn your attention to meeting the accreditation criteria.
“Whilst bank accreditation remains an ongoing challenge, brands that are well prepared and pro-active are improving their chances of achieving and maintaining this key point of differentiation,” says McAuliffe.