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Adapted from Help Your Banker Say Yes! What franchisros and franchisees need to know to get financing today by John P. Hayes, Ph.D, with Geoff Seiber.
Franchisors: When’s the last time you talked to a lender about loaning money to your existing or prospective franchisees?
How good are your lender relationships?
Maybe yours is one of the few franchise opportunities that doesn’t depend on lenders for the expansion of your franchise network – but for most franchise companies, franchisor/lender relationships are now every bit as important, maybe more important, than franchisor/franchisee relationships!
And yet, at a recent gathering of some 50 franchisors and franchisee leaders at the Texas Franchise Leadership Forum, only a couple of the franchisors said they were interacting with lenders. Most of the franchisors in attendance – including major names from the DFW marketplace – said they weren’t even aware that they should be talking to lenders.
But today, that’s part of the new normal in franchise financing!
Today’s lenders expect to hear from you
Publisher Robert Coleman, who spoke at the FLF, and whose company publishes the Best and Worst lists of franchise companies (based on SBA lending), stresses the importance of franchisors getting to know lenders. “Nowadays,” he says, “franchisors must tell their stories to lenders.” No longer are lenders just interested in hearing from a franchisee, or a franchise candidate, about the vitures of a franchise opportunity. No longer are lenders satisfied to attend franchise expos and conventions, and read the trade press, to know that this franchise or that franchise is the one to finance. Now the lenders want to hear it from the franchisor!
Coleman explains that it’s the franchisor’s responsibility (not just the borrower’s) to provide pertinent information to lenders. “Information is key,” he continues. “If a franchise company’s performance is better than (what’s reported in The Coleman Report, or apparent from the company’s FDD), then tell that to the bank.”
How to speak bank
What’s the best way for franchisors to tell it to the bank? Coleman suggests that franchisors produce a brochure or Web site that showcases pertinent disclosure information, just for lenders. “Any way you can get that information out there, do it. The key is the franchisor has to become lender friendly. The franchisor that hides behind non-disclosure, claiming they can’t release certain information, isn’t going to help their case, or the case of their franchisees and prospective franchisees. The more transparent the franchisor, the better in today’s lending environment.”
Of course, franchise lenders have their own means of getting information. They review the SBA’s Franchise Registry (it’s surprising how many franchisors don’t know about that list) and they also routinely read both the Best and Worst lists in Coleman’s newsletters. An appearance on the Worst list is almost certain to stunt a franchisor’s growth, and it discourages both existing and prospective franchisees in search of loans.
If your existing and prospective franchisees require leases and loans, especially SBA-guaranteed loans, you, the franchisor, can help their cause by launching a program to educate lenders about your business. It may be the best move you make in 2010 in terms of expanding your franchise network.
The New Normal For Franchise Financing
A Coleman Webinar
Sponsored by Coleman Publishing. Wednesday, March 17, 2pm ET. Join Bob Coleman, John Hayes, Bob Rodi (major franchise lender) and Geoff Seiber (major franchise finance broker) for this one hour program. Register by phone: 1-800-617-1380 or email.
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