- Franchisors often overlook or are unaware of the benefits of a finance accreditation.
- It gives your franchise better credibility to attract franchisees and gives your franchisees access to funds easily.
- While bank accreditations are harder to obtain, you can get accreditations from non-traditional lenders, who are often willing to take more risk and more flexible.
It is well known that the two most common challenges facing franchisors are finding good franchisees to join their network, and subsequently getting them financed.
Let's talk about how franchisors can overcome the latter.
One of the things that often get overlooked when expanding a franchise business is obtaining a finance accreditation from a lender, which plays an important role in the success of franchise networks.
It presents multiple benefits for the franchisor and franchisee. An accreditation means a lender has assessed the franchise model as viable and gives the franchisor an advantage in attracting franchisees.
Meanwhile, despite the wealth of lenders available to prospects, access to finance can be a major barrier for potential franchise partners. Any step a franchisor can take to help break down this barrier will have a positive outcome on their recruitment and retention success.
A simple access to funds allows franchise partners to take advantage of opportunities that come their way, fuelling internal growth from existing owners. Having an accreditation in place can also help get franchisees on board with new equipment rollouts, refurbishments or rebranding activities, as finance is readily available.
Once established, accreditation can benefit more than just new franchisees entering the network. Existing partners who are seeking more funds throughout their franchising journey will also see the advantages.
Getting a finance accreditation
Most lenders, from traditional banks to alternative providers, offer some form of accreditation for franchise brands. If you’re not familiar, accreditation programs allow franchisors to offer their network access to a pre-approved amount of finance with that lender. Such programs are designed to streamline the lending process for trusted brands and allow franchise partners seamless access to funds.
Bank accreditations were once a staple of the franchising industry. However, the recent Banking Royal Commission and Franchise Enquiry have caused tension between the franchise industry and big banks. This climate has resulted in many banks turning away small businesses, franchises included, and opting to lend in safer markets.
While it is still a good fit for some franchise partners, there are many characteristics of bank accreditation that make it unrealistic or unattainable for others. Bank accreditation is often only available to larger franchise networks of at least 50 units, and they often cap their funding at 50% of the franchise purchase price. Unfortunately, franchise partners are often left with little working capital after using their cash savings to fund the remainder.
Fortunately, there are providers outside of traditional lenders that offer a finance accreditation. Alternative finance providers have been growing in popularity among small businesses, with a recent Equifax study showing a 69% increase in commercial demand for alternative finance.
Many franchise businesses require a unique funding solution to fit their circumstances, and alternative lenders offer the transparency and flexibility to cater to their needs.
Generally, accreditation with alternative lenders is far more accessible than banking accreditation. In addition to this, non-traditional lenders are often more willing to take a higher risk and offer more flexibility in their funding. This is often reflected in their repayment options, lending periods and even their ability to fund smaller loan amounts.
As well as helping to eliminate any finance barriers, an accreditation can be used as a tool in the recruitment process and can give you an edge against other brands. Many prospects are aware of the challenges facing them in obtaining finance for their business and offering accreditation could be the selling point that gets them over the line.
In addition to this, lender accreditation aids in boosting the credibility of the franchise brand among prospects, as it reflects positively on the network’s overall success. Accreditation can also help streamline the franchisee recruitment and onboarding process by eliminating lengthy finance application processes.
Educating the franchise network about their options when it comes to funding their franchise is important in helping them make the best decision for their business. Whether they opt to go with a bank or an alternative lender, securing an accreditation is the first step in ensuring no prospects are lost because they couldn’t secure funding.
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