5 Franchises That Help With Financing
One way is for a company to take financing in-house -- whether by partnering with banks, creating financing arms to help franchisees through the lending process or securing private equity financing on more acceptable terms.
Not everyone's in love with the idea.
"It's okay for a franchisor to finance a small portion of the total investment, like the franchise fee, but I don't feel that franchisors should become the actual lenders," says Joel Libava, a franchise-acquisition consultant and author of Become a Franchise Owner! . "Great franchisors focus on franchisee profitability; that helps to grow a system."
Instead, companies should be managing the process to make sure loans get approved and that "no stone is left unturned to make sure that franchisees can actually get funded," Libava says.
But whatever form the help takes, it's timely. According to the State of Small Business report by Pepperdine University's Graziadio School of Business and Management, 35% of respondents who tried to raise capital in the past 12 months applied for bank loan -- and only half succeeded in getting bank financing. The report, released Monday, surveyed 10,637 privately held businesses.
Here are five franchises that offer help to new and existing franchisees.
1. Marco's Pizza
After decades of slow growth, Marco's Pizza rebooted the franchise in 2004 when restaurant chain expert Jack Butorac, who has played a part in the expansion of Yum! Brands' (YUM) KFC, Chi-Chi's and Tumbleweed, acquired the company.
Same-store sales at Marco's are up 8.7% this year. As a result, the company looks increasingly good to franchise investors, and Marco's has been ramping up expansion plans.
"It's very important to us to have great product quality," CFO Ken Switzer says. "That's one of the things in attracting franchise prospects in the last few years. When you have positive same-store sales like this, there are very satisfied franchisees."
Marco's Pizza has 263 stores but has sold the rights to 1,200 and is on track to open as many as 65 by the end of the year. It plans to have close to 400 stores by the end of 2012.
Even with that momentum, franchisees are having a hard time gaining access to funding.
"No matter how great the product is, no matter how much support the franchisees have, if you don't help with financing, there is only a limited number of stores you're going to be able to open, because only a relatively small number of people have enough cash from savings to build their businesses," Switzer says.