It is well known that the two most common challenges facing franchisors are finding good franchisees to join their network, and subsequently getting them financed. Let's talk about how finance accreditation can help overcome the latter. 

Finance accreditation plays an important role in the success and growth of franchise networks. Despite the wealth of lenders available to prospects, access to finance can be a major barrier for potential franchise partners. Any steps a franchisor can take to help break down this barrier will have a positive outcome on their recruitment and retention success.

How is accreditation of benefit?

Once established, accreditation can benefit more than just new franchisees entering the network. Existing partners who are seeking more funds throughout their franchising journey will also see the advantages. Simple access to funds allows franchise partners to take advantage of any opportunities that come their way, fuelling internal growth from existing owners. Having an accreditation in place can also help get franchisees onboard with new equipment rollouts, refurbishments or rebranding activities, as finance is readily available.

Most lenders, from traditional banks to alternative providers offer some form of accreditation for franchise brands. If you’re not familiar, accreditation programs allow franchisors to offer their network access to a pre-approved amount of finance with that particular lender. Such program are designed to streamline the lending process for trusted brands and allow franchise partners seamless access to funds. 

Accreditations not the norm anymore

Bank accreditations were once a staple of the franchising industry, however the recent Banking Royal Commission and Franchise Enquiry have caused tension between the the franchise industry and big banks. This climate has resulted in many banks turning away small businesses, franchises included, and opting to lend in less risky markets.

Whilst it is still a good fit for some franchise partners, there are many characteristics of bank accreditation that make it unrealistic or unattainable for others.

Bank accreditation is often only available to larger franchise networks of at least 50 units, and they often cap their funding at 50% of the franchise purchase price. Unfortunately as a result franchise partners are often left with little working capital after using their cash savings in an attempt to fund the remainder.

Alternative lenders may be your answer

Fortunately, finance accreditation is available with providers outside of traditional lenders. Alternative finance providers have been growing in popularity among small businesses, with a recent Equifax study showing a 69% increase in commercial demand for alternative finance. Many franchise businesses require a unique funding solution to fit their circumstances, and alternative lenders offer the transparency and flexibility to cater to their needs.

Generally accreditation with alternative lenders is far more accessible than banking accreditation. In addition to this, alternative lenders are often more willing to face higher risk and work with more flexibility in their funding. This can be reflected in their repayment options, lending periods and even their ability to fund smaller loan amounts. 

How to use accreditation

As well as helping to eliminate any finance barriers, accreditation can be used as a tool in the recruitment process and can give you an edge against other brands.  Many prospects are aware of the challenges facing them in obtaining finance for their business, and offering accreditation could be the selling point that gets them over the line. In addition to this, lender accreditation aids in boosting the credibility of the franchise brand among prospects, as it reflects positively on the networks overall success. Accreditation can also help streamline the franchisee recruitment and on-boarding process by eliminating lengthy finance application processes.

Educating the franchise network about their options when it comes to funding their franchise is important in helping them make the best decision for their business. Whether they opt to go with a bank or an alternative lender, securing an accreditation is the first step in ensuring no prospects are lost as a result of not being able to secure finance.

Franchise Finance HERE from James and his awesome team!