Five Questions You Should Ask Franchisors About Financing

March 27, 2010 10:18 am Published by Leave your thoughts

As you continue your search for a franchise to buy, one important aspect may be financing. Whether or not you get that financing may depend on your prospective franchisor! 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.

Impressively, one franchisor has tackled this issue by appointing a senior executive to build relationships with lenders. John Teat is the managing director of franchise finance for Primrose Schools. I recently interviewed him for the Texas Franchise Leadership Tele-Forum. Here’s what he recommends that franchisors do. Find out how well your franchisor meets these criteria!

  1. 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. . . . Who are the franchisor’s lenders?
  2. The franchisor should set up an initial meeting with the lender and plan to ask questions about the lender and the bank. Learn about the lender’s credit culture. What’s their “put thru” system like? Lenders are impressed by franchisors who want to know about their needs. . . . What can the franchisor tell you about lenders who will consider your application for funding?
  3. Franchisors must ask for the lender’s assistance. Create a team spirit with the lender and work collaboratively to put together a funding plan for your brand. Get the lender involved in your business! Invite the lender to your office; to your conferences. . . . Can the franchisor introduce you to lenders?
  4. Once the franchisor has a program in place with a lender, it’s important to send the lender only prospective franchisees and existing franchisees that meet the criteria for the program! The worst thing the franchisor can do now is to send the lender a candidate that doesn’t qualify. . . . What are the criteria for qualification? Has the franchisor explained them to you?
  5. Franchisors must stay on top of the “put thru” system with the lender. Remain involved. The lender will look to the franchisor for help. . . . What can you expect the franchisor to do to help facilitate this process for you?

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This post was written by Dr. John Hayes

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