Small business credit is tight and will continue to be tight for the next few years. But the good news is that when applying for credit, the more prepared you are, the better your chances of success. Prospective franchisees will first need to go to where the money is, or in this case, where most of the money is being loaned: local lenders.
You’ll benefit if you think like a banker and view your loan from a credit department’s perspective. Lenders will perform a credit analyst and will look for two things before changing from a conservative “don’t lose money” mentality to a “we can start making money” mentality. A credit analyst will want to see that the business being considered for a loan is able to show sustainable performance.
However, local lenders often don’t know have much franchise lending experience and very likely no experience with a particular brand. So therefore a risk assessment is needed. Before credit departments actually look at the borrower’s application, they need to answer two threshold questions:
First, are they comfortable with franchise lending risks?
Second, what do they know about the performance of the particular brand?
If they can’t answer “yes” to the first two questions, they will never get to the borrower’s application.
So what do credit departments want to see? Well, they’ll need more information than the marketing information franchisors provide. They want to see information that assesses risks related to the franchisor and risks related to the franchise system. As a prospective franchisee, ask your franchisor to provide you with the data lenders need to evaluate the investment in the most expeditious manner.