The Power of Strategic Partnerships in Catapulting Franchise Growth
The right partner can simplify the funding process and provide additional resources for candidates.
By Dallas Kerley, CFE
There are a number of strategies franchisors might employ to accelerate growth. When it comes to funding for their candidates for example, some take the approach that it’s the candidate’s responsibility to secure funding not the franchisor’s. However, others develop a different strategy and become more involved in helping the candidate secure funding by referring him to a trusted funding partner, who, in addition to funding, might also provide a variety of other services such as insurance and health care.
In fact, a growing number of franchisors are starting to realize that when they utilize a trusted funding partner to provide financing and more for franchisees, it can provide powerful benefits that don’t just extend to the candidates. These benefits include more unit growth, expansion into additional franchise markets, and the ability to alleviate candidates’ fears to drive brands forward.
Multiple Funding Options Equal More Unit Growth
How many times have you heard candidates say they were turned down for a loan by one or more banks and then they gave up? Allowing candidates to come up with their own funding can slow down the process, or worse, cause it to fall through altogether.
On the other hand, when you refer a candidate to a funding partner, often the candidate will discover a variety of funding solutions available. For example, one option a lot of people don’t know about is being able to utilize 401(k) rollover funding for the capital injection necessary for a U.S. Small Business Administration loan.
You and your candidates need a partner that has the experience and expertise to design a customized funding strategy, specifically for your concept and your candidate. When your candidates can capitalize on the funding opportunities available to them, they have a better chance of buying into your system, which means you can capitalize on more unit growth.
A Proprietary Lending Program to Drive Expansion into More Markets
What is a proprietary lending program? Although the structure can vary, typically a funding partner will work with one or more banks to set aside a certain amount of money to be used exclusively to fund your concept by providing loans to your candidates. Your concept is “underwritten” and the lender becomes well-educated regarding your franchise: how it works, why it works, what makes a location successful and what obstacles can be avoided or overcome.
Because the partner bank has vetted your system and has detailed knowledge of both the costs associated with the average project and the typical benchmarks for your franchisees, the approval process is much faster than the normal practice of allowing candidates to go to their local bank or lender where they need to educate a loan officer who is not familiar with your franchise for a loan.
Having a program partner gives you much more control over the funding process. You know your lending partner and he knows you; therefore you can have a frank and candid discussion should any problems arise that need to be addressed. In addition, because your lending partner knows the credit criteria which must be met to obtain a loan approval, prequalification is much quicker and can save you from wasting your valuable time should a candidate be determined to be unfundable. This knowledge also enables your program partner to properly interview your client, determine ways to mitigate any weaknesses in the application, and recommend the most appropriate approach to funding which will provide the greatest probability of getting your franchisee’s funding request approved.
In many cases, the franchisor will be charged an initial fee to participate in the program. This fee is used to cover the expenses involved in underwriting the concept, plus the work needed to establish the appropriate “credit box” or set of criteria through which the funding partner will analyze your candidates to ensure the greatest likelihood of success for their new business. Just as important, payment of this fee shows the involved parties that the franchisor has some skin in the game and will support the program once it has been created. Whatever the fee is, it’s usually well worth it when you consider the benefits: having a dedicated loan specialist who knows your concept and the requirements for your candidates to receive the funding they need, and having a streamlined funding process for turning prospects into closed deals.
One often overlooked advantage of a program like this is the ability to advertise “Financing Available.” To illustrate how powerful this phrase can be, imagine how many cars Ford or Chevrolet would sell if the dealers relied on their customers to get their own financing. There is a reason all car manufacturers offer financing: it helps sell more cars. Recognizing that this works well for companies across different industries, it may be worthwhile to consider whether you could award more units and expand more quickly if you were able to offer financing to your prospective candidates.
Additional Resources to Alleviate Fears and Drive Your Brand Forward
In addition to funding, your candidate has a long list of things they have to do before they can open their doors for business, including obtaining business and health care insurance, and securing payroll services. Why would it be important if your funding partner also offered these?
Let’s start with commercial insurance. Where do you send candidates now? If they go to their local insurance agent, more often than not, they will be told “I specialize in life, auto and home. I’m not familiar with errors and omissions insurance or how to write a commercial business policy.”
If they are utilizing their retirement plan for funding, they will need a surety bond which many agents are unfamiliar with. Similarly, if the candidate obtains an SBA loan, a life insurance policy may be required covering the amount of the loan. This is just the beginning of a seemingly endless quest to gather all the required insurance. Depending on what type of business they open, they may need a variety of commercial insurance policies including a business-owner policy, property and casualty, or buy-sell agreements.
Now how about health care? Fear is exactly what many entrepreneurs feel when they are considering leaving their current employers. “Where am I going to get health insurance? I have a pre-existing condition, will I be denied for health insurance coverage? My COBRA policy is going to cost $2,000/month. I can’t afford that while starting a new business.” If you have heard these concerns from one candidate, you can be sure other candidates are worried about the same thing. You can be proactive and provide a solution in advance to alleviate these concerns before they derail the deal.
As a franchisor, it’s important to address these common headaches and concerns a candidate faces when contemplating purchasing a franchise. However, referring your candidates to one company to access their retirement funds, another company for an SBA loan, another for insurance, another for health care and another for payroll is a recipe for failure. As a franchisor, putting a strategy in place that simplifies this process and alleviates candidates’ fears can significantly shorten the time spent from discovery day to opening for business — and drive your brand forward.
As franchise executives continue to look for ways to accelerate their growth in a highly competitive industry, finding a trusted partner is not only smart, it’s essential. The right partner can simplify the funding process and provide additional resources for candidates, so that you can set your brand apart from competing brands and catapult your franchise system’s growth. n
Dallas Kerley, CFE, is chief development officer of Benetrends Financial. Find him at fransocial.franchise.org.