Franchise candidates need easy access to capital. Many candidates who were "slam dunks" to get financing in the past are now receiving rejection letters and are faced with the prospect of trying to finance franchise opportunities through internal funds or with help from friends and family.
During a Franchise Update Leadership & Development Conference, Darrell Johnson, CEO of FRANdata and former "blue suit and power tie wearing" member of the banking community, predicted lenders are going to be as concerned with the potential match between the candidate's skills, background, and experience to successfully run the franchise venture as they are with the candidate's ability to repay the loan.
Franchisors with higher loan defaults than their competitors may wake up one morning and find their franchise candidates and existing franchisees completely cut off from raising start-up or expansion capital.
Financing is harder to obtain than in the past. As a result, franchisors are going to far greater lengths than before to help franchisees obtain capital. This means using banking underwriters such as FRANData, crafting an Item 19, possibly considering a mix of different conventional (such as SBA) and unconventional (such as self-directed IRAs) financing strategies. Bankers appear to equate how the candidates' background, skills, experience, and resources will be deployed in the business with their ability to repay loans.
For instance, I received a call from a good friend and highly skilled franchisee recruiter who is employed by a home healthcare franchisor. He told me, "Joe, you will never guess what happened. A lending officer just interviewed my candidate to qualify him for our business - not to qualify him for a loan, but as a franchisee for our business! She was doing my job!"
Get involved. Get a bank report and join franchise registries. If you aren't operating from a recruitment philosophy now, you run the risk of getting cut off from funding later. Keep in mind, banks have already adopted the franchisee recruitment philosophy!
- Consider using PR and social media to create more perceived success of your brand. Know that bankers use Google, Facebook, and other social media platforms.
- Communicate some financing options on your franchise opportunity website. Just because you know what financing options are out there doesn't mean your candidate will know them too.
- Give some thought to what type of "package" your candidates would need if they had to visit a community bank. Would they need a business plan, a pro forma, an overview sheet? Do the heavy lifting for them by having the parts of the package you can legally provide already done.
- Have your franchise offering reviewed by FRANdata or another underwriter to clarify and satisfy the needs and concerns of bankers and finance companies.
Joe Mathews is a founding partner of Franchise Performance Group, which specializes in franchisee recruitment, sales, and performance. This article is from his free, downloadable e-book, The Franchise Sales Tipping Point: 10 Keys to Creating a Franchise Sales Breakthrough. Contact him at 860-567-3099 or firstname.lastname@example.org.
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