Franchisors Can Help With Financing
In June, FRANdata published an e-newsletter titled, “It’s Time To Start Helping Franchisees To Get Loans.” Darrell Johnson, the research firm’s CEO, wrote: “Franchisors must increase their attention to helping franchisees obtain needed capital. Since lenders make decisions based on perceived estimates of risk, then you must help them assess your brand’s franchisor and system risk.”
Johnson listed five ways a franchisor can help its franchisees:
1. Provide an historical risk analysis of both franchisor and system performance.
2. Provide a comparative risk analysis if there are performance issues that need context with other franchise brands in your sector.
3. Make sure your brand is current on the SBA Registry.
4. Align and regularly compare your franchisee screening criteria with what banks are requiring.
5. Talk to more banks to open up alternative sources of franchisee loans.While many franchisors have a long way to go in this regard, we found some who, if not ahead of the curve, at least are on the front end.
“We absolutely assist with access to financing,” says Shelly Sun, co-founder of BrightStar Healthcare. For Sun, getting on the SBA Registry is number one. She also seeks out networking events to meet lenders and make them aware of her FDD and business model–as well as to stay in touch with the changing requirements of lenders.
“Our Item 19 is laid out to help candidates prepare a financial plan for their bank. We give them a form to put in numbers–the formulas are built in, but there are no numbers,” she says. “It will calculate a full income and cash flow for them. The bankers love it.”
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