How brokers can benefit from this growth
Undeterred by increased cost-of-living pressures, franchise businesses continue to grow and multiply. So it’s not surprising that the major banks are looking for ways to make the loan process easier for their customers.
Franchise businesses, particularly food retailers, are popping up across Australia’s new housing developments, shopping centres and infrastructure projects. And because commercial lenders have a track record of financing franchises and understand their business models, each lender has a panel of their preferred franchises. That means brokers and their customers can reap the benefit of fast-tracked franchise lending processes.
The multiplying benefits of franchise financing
Ian Brady (pictured below), Relationship Manager at ANZ, says lending to a franchise customer generally opens the door to a stream of additional finance opportunities for brokers.
“Most franchise customers aren't happy with just one store,” Brady says. “When things are trading well with the first store, they see an opportunity to look at a second store. And as they grow, there could be equipment finance opportunities. And the customer will likely want to increase their personal wealth and diversify into investment property opportunities. So, the broker benefits from that.”
Brady has a customer who started with one franchise store and now has 12 franchise stores diversified across two franchise systems.
“Because they're doing so well, the directors now want to build their personal wealth and are looking at investment property,” he says. “We can use surplus profits from the business to support an investment loan because we've got a good understanding of the business. That's a common story among my franchise customers.”
Franchises make it easier for salary earners to own a business
Increasingly, more people want to buy a franchise, even though they may be working full-time.
ANZ Business Banking Manager Kamal Kande (pictured below), explains: “Some customers want to resign from their current role and look after the franchise. Or they may be able to keep their job and leave the franchise with a management structure.”
Kande says a salary-earning couple with a passion for hospitality decided to acquire an existing, successfully operated food franchise in Western Sydney.
“They came to the broker after due diligence with the master franchisor,” he says. “The franchise they were acquiring was successfully management-run. The male applicant decided to keep working full-time while the female applicant choose to work part-time in her salaried job and, over two years, transition into managing the franchise.”
“That avoided any abrupt disturbances to the business’s financials. Now, the female applicant works full-time as store manager and the business’s overall financial position is even better. And the couple are planning to acquire their second store and have plans to own multiple stores.”
Because the franchisor provides comprehensive training and the business model is proven, it is easier for a salaried employee to transition to franchise ownership than to an independent business start-up.
Brady describes the ideal first-time franchisee as having some business acumen and know-how.
“But if they're coming from a similar industry or have managed stores, they may think ‘right, I know what to do here. I want to have a go myself’,” says Brady. “That experience is really good. But coming across from a different industry where they have a good business understanding also works.”
Why franchise loans are approved faster and at higher values
A franchisee sells the products or services of a franchisor, using their name and business system. In return, the franchisee pays the franchisor ongoing service fees.
Here’s three reasons why franchise lending can be more advantageous than standard business lending:
- Franchisors are established corporations that have tested and proven business models. Lenders view franchise businesses as more reliable than independent business start-ups.
- The franchisor supports the franchisee businesses with leadership, guidance, training, marketing and assistance – fostering business success.
- Some business functions are managed centrally by the franchisor. For lenders this can reduce management risk for each individual franchisee.
For brokers, this lower risk for the lender means that their franchisee customers typically benefit from streamlined application processes and a higher lending capacity compared to standard business loans.
Loan reviews open up franchise financing opportunities for brokers
The lower business risk of franchise businesses makes it easier for brokers to bring up business ownership with their customers.
Kamal explains: “When brokers do lending reviews with their mortgage customers, they proactively ask ‘so what's the plan for the next three to five years now that your residential mortgage is sorted, now that your investment property is sorted, what's next?’ For customers looking to generate an additional source of income, owning a franchise is a great opportunity.”
Brady adds: “Brokers often knock on a franchise door and speak to the franchisee. There can be an opportunity for refinance because when the owner started out they likely used their home as security. So there’s the opportunity to deleverage their home and leverage up against the business. This frees equity in their home for them to use for other investment purposes or to buy another franchise. And because we've accredited close to 80 franchise systems, refinancing is straight-forward.”
Kamal notes that franchisees generally have an ambition to expand.
“If a customer has acquired one store, in a couple of years’ time, they'll come back to me to finance a second store,” Kamal says. “And in the process, the franchisees attend the master franchisor get-together and they talk to their fellow franchisees about their lending experience.”
Brady says there’s another plus.
“Brokers can often get an invitation to a district franchise cluster meeting and this is a great business development opportunity for brokers as they put faces to names and possibly get some exposure that way,” says Brady.
More housing and infrastructure development, more franchise sites
Brady highlights that new housing estates and shopping centres are popping up everywhere.
“You’ve also got the Western Sydney Airport and other infrastructure developments that are creating retail spaces, whether drive through or shop fronts,” he says. “The activity is still there for franchise businesses – we haven't seen a slowdown.”
“The takeaway food retailing industry is holding its own and franchise systems are expanding. You could almost say it’s recession proof. With increasing interest rates and cost of living pressures, people might not go out to a restaurant, but they'll still choose a casual dining experience and takeaway food.”
Brady cautions that rising interest rates and supply constraints will bring some uncertainty over the next few months.
“Building new shopping centres is taking longer than usual because trades are pretty scarce. But I’m still seeing franchise systems expand. So, if they're on our panel, it’s a good opportunity for us.”
Learn more
To find out more about Australia’s largest panel of preferred franchise models or to learn how to approach a franchise deal, contact your ANZ business banker or use this link: Lending to business franchises
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