Tuesday, August 6, 2024
Franchising: A Major Asset for Securing Bank Loans
Starting a business is an exciting but challenging journey, with financing often being one of the biggest hurdles. Securing a bank loan to open a business can be a complex and discouraging process for many independent entrepreneurs.
However, in the world of franchising, this challenge seems easier to overcome. Franchisees enjoy numerous advantages that make financial institutions more willing to provide them with funding.
In this article, you'll find out why franchising is seen as an asset by banks and how it facilitates obtaining loans to open a business.
The Security of the Franchise Business Model
One of the main reasons banks are more inclined to finance franchise projects is the security of the business model they represent. Unlike independent businesses, franchises rely on a proven concept and a well-known brand, thereby reducing the risk of failure.
Banks Favor Projects with Reduced Risk
Banks are naturally cautious because they need to ensure that the loans they provide will be repaid. When evaluating a franchise project, they consider the franchise's track record of success and the strength of its business model. If a franchise has already proven its ability to thrive in various markets, banks are more confident that the new franchisee will also be able to repay their loan.
Support from the Franchisor
Another key advantage of franchising is the continuous support from the franchisor. This support typically includes initial training, assistance during the startup phase, and ongoing support in business management. This support further reduces the risks associated with starting a new business, which is a reassuring factor for banks.
A Strong Banking Relationship Through Established History
The relationship between franchisees and banks is often strengthened by the history of existing relationships. Many franchisees choose to work with banks that already have an established relationship with the franchisor. This creates a climate of trust that facilitates the loan approval process.
Financing: A Balanced Mix of Loans and Equity
Franchise financing often relies on a balance between bank loans and personal equity. This risk-sharing approach is another factor that reassures banks.
For the majority of franchisees, bank loans remain the primary source of financing. Approximately 60% of franchisees turn to bank loans or leasing to finance their projects. This reliance on credit demonstrates the banks' confidence in the franchise model, as well as the franchisees' ability to repay these loans.
The Financial Commitment of Franchisees
Additionally, franchisees are willing to invest their own funds in their business. About 50% of them indicate that they will use their personal savings to finance part of their project. This risk-sharing between the bank and the franchisee is a positive signal for lenders, as it shows the franchisee's personal commitment to the success of their business.
Franchising: A Model That Attracts Both Banks and Entrepreneurs
Franchising clearly stands out as a preferred model for securing bank financing. The support of a recognized brand, expert guidance, and the balanced risk-sharing between bank loans and personal equity are all factors that reassure banks and facilitate loan approvals.
For entrepreneurs looking to start a business, franchising offers a unique opportunity to benefit from a secure framework and unwavering support, allowing them to overcome financial obstacles and focus on growing their business.
*Annual Franchise Survey conducted by Banque Populaire and the Fédération Française de la Franchise (FFF) - 2023