Not All Franchise Financing Programs are Created Equal. Before You Invest, Ask the Right Questions about their Franchise Financing Programs.
Of course, you’ve got to qualify for the financing, but today, franchisors can help expedite loan approvals for their prospective and existing franchisees. Unfortunately, only a few franchisors seem to understand the new role franchisors must play in franchise financing, so while you’re shopping for a franchise, you must now ask what the franchisor is doing to help line up financing. Lenders now expect franchisors to get involved in the lending process; a requirement that wasn’t the case just a couple of years ago.
John Teat is the managing director of franchise finance for Primrose Schools. His job: Line up financing! I recently interviewed John and here’s what he recommends that franchisors do. Find out how well your franchisor meets these criteria!
- Today, franchisor/lender relationships are absolutely critical. While it’s location, location, location in real estate, it’s relationship, relationship, relationship in franchise financing. It’s who you know, and the franchisor that doesn’t have a network of bank and lender relationships isn’t in a position to help franchisees get funding. Ask the franchisor: Who are your lenders?
- The franchisor should set up an initial meeting for you with the lender/s. Ask questions about the lender’s requirements. Learn about the lender’s credit culture. Lenders are impressed by franchisors (and franchisees) who want to know about their needs. So what can the franchisor tell you about the lenders who will consider your application for funding?
- Franchisors must ask lenders for assistance. They should collaborate with the lender to create a funding plan for the franchisor’s brand. Has the franchisor done this advance work?
- Once the franchisor has a lending program in place, it’s important for the franchisor to refer only qualified prospective and existing franchisees to the lender. The worst thing the franchisor can do is send the lender a candidate that doesn’t qualify. So ask the franchisor: What will I need to do to meet the lender’s expectations? How do I qualify?
- Franchisors must stay on top of the lender’s "put thru" system. The lender will look to the franchisor for help to keep the loan in process. Ask the franchisor: What will you do to help facilitate the lending process for me?
Granted, this puts a lot of pressure on franchisors, but franchisors that want to sell franchises today understand this process and are making it work. Find a franchisor that wants to help you not only buy the franchise, but get the funding that’s required.
Learn more about financing options by visiting our Franchise Financing Center