Has getting a franchise wide lender accreditation with a bank gone from being the proverbial holy grail of franchise finance only to become a poisoned chalice?
Having a lender accreditation has long been thought to be the pinnacle of what a franchise group can achieve on behalf of its existing and new franchisees to assist them in securing finance for their business, quickly, efficiently and hopefully on the best available terms.
Unfortunately, the term ‘lender accreditation’ has been perverted over recent years by both lenders and unscrupulous franchisors.
Lenders, using the term for any franchise system just to attract their applications only to reject those without high security and offering franchisees nothing that any individual SME borrower could have otherwise received.
Franchisors, that know they don’t qualify for a genuine enhanced finance solution for their franchisees but still wanting to be seen to be giving their franchisees greater support than is actually possible.
My experience is that there is frequently tacit agreement between lenders and franchisors in presenting a fiction to unwitting new franchisees in this regard.
But a genuine bank accreditation is a good thing as it does give those franchisees some process, efficiency and pricing benefit. Doesn’t it? Yes, it sometime does.
In the June 10 edition of ABC’s National Wrap when asked what areas of franchising the Royal Commission on finance and banking should be reviewing Adele Ferguson responded “I think the royal commission needs to be looking at where banks are accrediting franchises.”
Adele Ferguson is a Fairfax Investigative Journalist and has been instrumental in exposing poor practices in both franchising, finance and banking, so her words carry substantial weight.
Adele’s argument is that people see a bank accreditation as being a bank giving an imprimatur to a franchise, thus convincing a new franchisee to buy into that franchise with the apparent blessing of the bank that has accredited it.
But what is the implication of scaring banks even further away from lending to the franchise sector?
It is the funding starved franchise that could suffer from such a royal commission and parliamentary inquiry review into bank accreditation.
There needs to be more finance available to the franchise sector. Scaring liability shy banks out of the space will not help anyone.
At the Franchise Finance Market we believe the time of a franchise sector funding drought is rapidly approaching and the only way to avoid this drought is by the sector taking control of its own finance solutions.
For more details on your franchise’s finance solution talk to me Darren Lelliott, Darren@FranchiseFinance.Market 0431 775 252.