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Franchise development executives know that a high percentage of their future franchisees will require debt to purchase a franchise unit. Even the multi-unit franchisees that so many brands tirelessly chase will leverage their equity capital with debt. Franchisors need to 1) understand how and when the franchisee debt requirement affects the franchise development process, and 2) what actions they can take to achieve their desired outcomes: sell more units, achieve faster openings, and stop investing time into subpar prospects.
The franchise development process is often described as a funnel. Franchise leads enter into the wide mouth at the top of the funnel, and as the funnel narrows fewer and fewer leads remain until a limited number of franchisees emerge from the its narrow end.
The role of financing traditionally begins at the lower end of the development funnel for both the candidate and the brand. Unfortunately, this can result in missed opportunities, inefficient use of resources and time, and frustration and disappointment for both. Regarding financing, the candidate most likely has one pressing question: “Can I get the financing I need to purchase this franchise?”
This question is an impediment or hurdle that can slow, or even halt, a candidate’s progress down the development funnel. Successful development executives structure their processes and organizations to avoid roadblocks. Take the most common hurdle for instance: “Will I make money with this brand?” Brands have constructed thoughtful and rigorous validation programs such as lengthy Item 19’s, well-designed discovery days, and franchisee reference programs to educate candidates, thereby eliminating those hurdles. To bypass the financing hurdle, “educating the candidate” is the path to follow.
Only a fraction of brands take action to solve the “Can I get financing?” question. Some took the extreme measure of offering direct lending programs. Take Matco Tools, for instance. The brand has extended more than $100 million in credit to its franchisees, in large part to eliminate their candidates’ financing anxiety while in the development funnel. Matco’s growth could not have occurred without such a bold program. Few brands, however, have the capital or desire to follow Matco’s lead. A better solution exists.
The critical task is to directly answer the candidate’s question, “Can I get the financing I need to purchase your franchise?” Home sellers are similar to franchise development executives, in that neither wants to waste time on unqualified buyers. Home sellers have long cracked this problem by requiring that offers to purchase include a mortgage prequalification, made possible from a credit score. Leading franchise brands are following a similar path, and the results, although early, are making the franchising community take note. To understand how this concept works in the franchise market, we look at a specific case study: Wayback Burgers.
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The executives at Wayback instituted a new policy to offer all leads a complimentary financing education report that includes a personal credit score (FICO), a business credit score (FICO SBSS, used by lenders nationwide), and an instant financing assessment that may include prequalification offers from lenders. The solution, bQual, was developed by BoeFly in conjunction with FICO and Equifax. Beyond offering the financing education report to all leads high in the funnel, Wayback requires the report once the candidate formally applies.
Early data shows that a candidate who has received a bQual financing education report progresses down the funnel at a higher rate and in a shorter time than leads who are not given the financing education report.
Initial data analysis of the impact of bQual
on Wayback’s development process
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John Eucalitto, president of Wayback, has been vocal on the importance of addressing all candidate concerns. “When a lead has a question that we can’t or don’t answer we are putting that lead at great risk of getting stalled out, or worse, falling out of our development funnel altogether,” he said.
“By giving them their bQual,” he added, “a few important things are happening:
Small business lenders have long been stymied in their efforts to offer prequalifications because prospective borrowers had no way to secure their small-business credit score. This solution has the power to transform the process because the franchisees access the same data the lenders will ultimately use to judge them. Since the data is independently secured, rather than borrower-self-reported, banks can use the information to issue meaningful prequalifications.
As the Wayback Burgers case shows, brands have much to gain by investing resources to provide leads with independently secured data and corresponding lender-issued prequalifications.
I conclude by presenting four specific use cases deployed by franchisors, not as an exhaustive list, but rather to inspire future unidentified uses.
Franchise experts have applauded the innovation of brands delivering candidates their consumer and business credit scores and lender-issued prequalifications. The real question is not whether the solution is valuable, but rather which creative strategies will top brands deploy to beat their competitors in the market.
Mike Rozman is co-president and chief strategy officer of BoeFly. To learn more about bQual and how your franchise system can achieve better results, click here or call 800-277-3158.