In this episode, we discuss how franchising has prospered despite the hurdles it faced with traditional lenders. In the past, franchisors relied heavily on their bankers to provide funds for franchise sales and growth. However, the local bank was not the ideal source of financing for prospective franchisees as they traditionally loaned based on assets, which did not align well with the low asset nature of franchising.
Fortunately, the situation is slowly changing, and many positive factors are contributing to this improvement. Firstly, bankers are becoming more aware that franchised businesses have a significantly lower failure rate compared to non-franchised ones. This understanding is crucial in shifting the focus of lending towards cash flow, which is a strength for most franchised businesses.
Additionally, the franchise industry has been attracting better-educated and more experienced individuals, further improving its reputation and credibility in the banking sector. Successful and pioneering franchise operators have also played a significant role in building positive relationships with bankers over the years, providing them with valuable insights into the wealth-creating potential of franchised businesses.
As a result of these positive developments, bankers are now developing larger appetites for franchise financing. Some of the larger lenders are even creating new departments specifically dedicated to serving franchise customers. This means that your local banker may now be more inclined to engage in serious discussions about financing your franchise venture.
