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More franchisors are acting as bankers to fund franchise expansion during the current credit crunch, reports journalist Ron Ruggles in the Nation's Restaurant News.A panel of franchisors assembled during the just concluded International Franchise Association convention to discuss how some franchise chains have done this.
[Reginald Heard, president and chief executive of Bankers One Capital] ...said franchisors also can help bankers make positive decisions on franchisee loans by providing historical data, especially closure and performance history. "The problem with letting franchisees go out there completely on their own, and not only present the deal but represent your brand, is a mistake," he said. "You really have to be proactive. It's competition for capital. Banks are looking at deals that have strong sponsorship."
… Heard said in franchise deals, franchisor-financing assistance eases a major hurdle. "It takes a lot of anxiety off the table," he said. "I come across a lot of franchisees who are engaged in the process and can't get the financing. If that issue is off the table, it keeps the deal in play and takes them to the next level of executing the franchise agreement." [via NRN]
Loans may be particular hard to obtain from lenders for many franchise systems, not just because of the credit crunch and a bad economy. But also because the Small Business Administration, the nation's largest underwriter / guarantor of franchise loans, has warned its preferred lenders that in its experience franchise loans generally are riskier than independent small business loans.