Financing, Accreditation, and Franchise Opportunities
Dean Hogan| Network Development Manager | Clark Rubber Franchising
Dean Hogan is Network Development Manager at Clark Rubber Franchising, an industry leader in the modular pools, foam, and rubber retail market. With years of franchising experience, Dean has a wealth of business knowledge - having been a franchisee in two other franchise systems before joining the Clark Rubber Group office team. Below, Dean shares with us some of his industry insights regarding financing a franchise and benefit of accredited franchisors.
(Please note this article provides general commentary and nothing asserted herein is intended to serve as legal, accounting, or finance advice. Please consult your planning, legal, financial and accounting advisors in considering which franchise opportunity suits you and the best way to finance that opportunity.).
Many potential franchisees are unaware that they can obtain financing assistance to pursue franchise opportunities. A number of banks and financial institutions have departments that specialise in providing franchise loans, and may offer accreditation to franchise systems that meet certain criteria.
If a franchisor becomes accredited, associated franchisees can borrow a certain percentage of money against the value of the franchise business depending on a criteria including its stock, assets, and licensing fees. Interested buyers should always research whether a franchisor is accredited by one or more banks if financing is desired. A favourable financing outcome may also be more likely where a franchise system is accredited, because franchisees can provide more collateral than just their personal assets. This may offer them the opportunity to borrow more money to fund franchise opportunities of interest. In determining whether a franchisor should be accredited, a bank will investigate the franchisor’s system thoroughly. Some of the banks’ areas of focus include:
- The franchisor’s financial position,
- Whether the franchise opportunities on offer are for new "greenfield" locations or existing operations,
- The franchisee’s success/ default rate within the system, and
- An existing business track record.
If the bank becomes comfortable with the franchise system it may offer loans of up to 60% of the value of a franchise business, against the security of the franchise unit’s assets, depending on several factors.
"If the bank becomes comfortable with the franchise system it may offer loans of up to 60% of the value of a franchise business, against the security of the franchise unit’s assets, depending on several factors."
Ultimately, decisions regarding financing issues are negotiated between the potential franchisee and the bank. Where a franchisor is accredited, a franchisee may only have to pay a cash deposit and use the business value as security for the loan, otherwise the bank may require extra security over assets. With a sound business model and the right location the effort you put into the business will often directly impact your financial return, so you get out what you put in.
Taking on too much debt from the outset can have negative financial consequences while trying to build a business. This can take much of the enjoyment out of the franchise ownership experience. In the end, the decision on how to finance the purchase of a franchise should be made upon careful reflection, based on consultation with experts and what works best with your personal finances.
The Clark Rubber franchising system is accredited by National Australia Bank and Westpac. At Clark Rubber, we advise future franchisees to seek qualified legal, accounting and finance advice before committing themselves to financing a franchise opportunity. Many legal and financial professionals have developed expertise in dealing with issues related to franchise opportunities.