ACCREDITATION: TAKING YOUR FRANCHISE NETWORK TO THE NEXT LEVEL
DESPITE THE EVER-CHANGING CHALLENGES FACED BY FRANCHISORS IN THE AUSTRALIAN MARKET, THERE ARE TWO CONSISTENT BARRIERS TO OVERCOME: FINDING QUALITY FRANCHISEES AND EQUIPPING THEM WITH FINANCE. ACCREDITATION IS A TOOL THAT CAN HELP FRANCHISORS TO OVERCOME BOTH.
Accreditation programs by lenders are an important part of the finance offerings available to the franchise network. Despite the number of lenders operating within this space, access to finance can still be a major barrier for new prospects and can dampen the potential growth rate of franchise networks. Gaining accreditation with a range of bank and non-bank lenders is something that franchisors can do to help incoming and existing partners overcome this barrier. Accreditation ultimately establishes a framework to support long-term growth.
Accreditation programs take into consideration how strong a franchise network is as a whole, and then, based on this assessment, provide preapproved funding up to a certain amount for both new and existing franchise partners. Although this can be a somewhat time-consuming process for the franchisor, it is an important step for any growing network and can become the cornerstone of their franchise finance strategy.
Prior to the rise in popularity of alternative lenders, bank accreditations were a staple of the franchise industry. However, Australia’s lending landscape has seen a tumultuous time through the banking royal commission, and as a result the industry has seen a diversification of lenders and finance offerings. Now most banks and alternative lenders offer some form of accreditation program to support the franchise industry, resulting in a wider range of choices. Accreditation is not a one-size-fits-all solution, and franchisors should seek accreditation with more than one lender to ensure that their franchisees have a range of options to suit their needs.
While bank accreditation is often the first choice, stricter requirements mean that this is out of reach for some franchise networks. Bank accreditation programs are often limited to franchise networks of at least 50 units, and place restrictions on the amount of the purchase price they will lend, capping it at 50 per cent. Unfortunately, this makes it an unrealistic option for franchises that are still in the growth phase or operating a smaller network. In addition to this, many traditional lenders have shied away from funding small business, franchises included, preferring to lend in traditionally less risky markets.
Despite difficulties with more traditional lenders, many franchise networks have found success in opting to explore accreditation with an alternative provider. Non-traditional lenders have seen heavy adoption rates in both the consumer and commercial space, as their more flexible offerings allow for unique funding solutions to fit their customers’ needs. Their willingness to take on a higher risk makes them accessible to small business owners, who are seeking the ability to borrow smaller amounts on more flexible terms. Non-traditional lenders have also seen praise for their high levels of transparency – something that has become highly valued by consumers as mistrust of traditional lenders grows.
While some franchisors may see accreditation as a tool that only helps incoming franchise partners, this is certainly not the case. Existing franchisees face new expenses throughout the life of their business, and the ability to access quick and easy funding through accreditation allows them to commit to refurbishments, equipment upgrades and expansions without putting their capital at risk. Providing franchise partners with simple access to finance forms a platform to drive internal growth, giving existing franchisees the tools they need to take advantage of new opportunities, without the deterrent of lengthy applications and approval times. Putting in place an accreditation program can also encourage adoption of franchisor initiatives such as new equipment rollouts, new store designs and rebranding activities, as finance is pre-approved.
Holding an accreditation with one or more lenders also acts as a key selling point throughout the recruitment process. Accreditation adds to the credibility of a franchise brand and reflects the success of the network overall. Having the backing of one or multiple lenders is a drawcard that may attract prospects to your network over others. Often prospective franchise partners are well aware of the challenges they face in entering a network, and gaining the funding required to get their business up and running is one of the most daunting. The appeal of a streamlined recruitment and on-boarding process – without the stress of seeking finance – can aid in recruitment success and subsequently fuel network growth.
Ultimately, accreditation is a tool that is beneficial to both franchisors and franchisees. Being able to offer existing franchisees pre-approved funding is important when encouraging growth, and accreditation with multiple lenders gives each franchise partner the opportunity to seek a solution that fits their business’s unique needs. When recruiting new franchisees, putting accreditation in place ensures that quality prospects are never lost due to an inability to access the funds they need to start their business. Take your franchise network to the next level through accreditation.
Accreditation adds to the credibility of a franchise brand and reflects the success of the network overall. Having the backing of one or multiple lenders is a drawcard that may attract prospects to your network over others.”
Franchise Finance Australia is a specialist funder to the franchise sector, with unrivalled knowledge of franchisees’ funding requirements as well as direct relationships with the franchise networks operating in Australia. Founded in 2014 by directors with a background in franchising, FFA has remained committed to offering flexible funding solutions that allow franchisees to start a new business or improve their existing business.