Benefits of Bank Accreditation
This article appears in the May/June 2014 issue of Business Franchise Australia & New Zealand
The two biggest impediments to franchise expansion since the global financial crisis has been the recruitment of quality franchisees and the ability for franchisees to access finance from banks.
These two stumbling blocks are related, in simple terms franchisors will in the main be able to recruit more franchisees if it is easier for franchisees to access finance. This is where a bank accreditation can help.
A bank accreditation enables a potential franchisee looking to buy a franchise to borrow 40 to 70 per cent of the total set up costs of a new franchise, or purchase costs of an existing franchise business.
A bank accreditation supports the growth of a franchise system by providing streamlined processes for lending and access to other cost-effective transaction solutions for the systems franchisees.
What are the benefits of becoming accredited with a bank?
A bank accreditation creates many opportunities and benefits for franchisors and franchisees, including the following:
• The opportunity to grow your franchise system faster with bank finance offered against the business without in some instances having to provide a home or other collateral security for the loan.
• The ability to choose and recruit from a larger number of potential franchisees as a result of easier access to finance.
• It makes it easier for the franchisee to approach a bank that understands franchising and the specific accredited franchise business.
• It provides access to funding for existing franchisees that may require additional finance for refurbishments.
• The benefit of dealing with accredited franchise specialist bankers who have the experience, capability and understanding of your franchise system and franchise transactions.
What is the process to obtain bank accreditation?
The bank accreditation process differs slightly from bank to bank but generally entails:
• A franchise specialist banker will meet with you to seek an understanding of your franchise system, structure, operating processes, expansion plans and ongoing strategy.
• The bank will request to review the franchise systems legal documents such as the disclosure document and franchise agreement and financial documents including the franchisors financials and franchisees benchmarks and set up costs.
• The bank will work with you to structure a reciprocally agreed package to be delivered to all your franchisees nationally. This will normally include a tailored and complete financial solution specific to your franchise system including a merchant group deal.
• The bank will provide supporting marketing material detailing the banks offer tailored specifically for your franchisees.
What do banks consider important when assessing a franchise system for accreditation?
Banks consider potential new accreditations using their own individual criteria; however, as a rule of thumb banks choose to partner with franchise systems that are:
• Established system usually with a minimum number of established franchise outlets.
• Owned, operated and tested the franchise system for a minimum of at least three years.
• Strong with proven profitability and trading history for a minimum of at least three years.
• Growth oriented with a clear and achievable vision for the future.
• A market leader or a strong emerging player in a growing innovative industry with strong business expertise.
• A system with exceptional brand reputation, which is often demonstrated through superior recruitments processes, successful marketing programs, ongoing operational support and training.
• A brand that demonstrates exceptional behaviours among existing franchisees, the bank and other stakeholders.
• Able to provide timely and detailed financial information, i.e. benchmarks, and provide financial support to the franchisee network as required.
• A brand with a strong national footprint (or forecasting same).
• A brand with appropriate size and scale, measured using criteria such as average set up costs, industry benchmarks and historical business sales.
• Major cash flow source is from royalties (e.g. % of gross sales) as opposed to selling franchises (e.g. franchising or licensing fees).
• A Tripartite Agreement to be executed by the franchisor, franchisee and Bank.
Initial Information you should expect to provide to your bank for an accreditation application
• A copy of the Disclosure Document.
• A copy of the standard Franchise Agreement.
• The last two years franchisors financial statement.
• Franchisee set up costs and key benchmarks.
• 12 months actual franchisee profit and loss statements to support benchmarks provided.
Franchisees needs are different
Franchisees have different needs to an independent small business. Westpac has dedicated Senior Business Development Managers who work with prospective franchisees to assist in:
• Securing funds for initial set up costs, purchases or business growth.
• Greater financial visibility and control by streamlining finances.
• Helping franchisees to meet their financial obligations without restricting their cash flow.
• Sharpening franchisees financial management skills through workshops that complement the training provided by franchisors.
Westpac has supported the franchise sector in Australia for over 20 years. The growth of a specific franchise system is supported by providing streamlined processes for lending, as well as access to other leading transactional solutions. The bank also has a national network of franchise specialist business bankers who are able to deal with the specific day to day needs of the franchise customer.
Labrina Tsekouras is the Westpac Senior Business Development Manager for Victoria and Tasmania and specialises in the franchising sector.
Contact Labrina at:
Phone: 0418 246 903