The franchise industry is likely to go through a huge ownership shake-out over the next 12 to 18 months and will require a large surge in capital, the head of an advice group says. Adrian McFedries, the head of DC Strategy, which advises clients such as Boost Juice, Fernwood Women’s Health Clubs and Mortgage Choice and is expanding into the United States, believes it’s the season of the seven-year itch as more franchisees look to sell their businesses and corporate executives, made redundant, seek to find a job through buying a business.
Rod Nuttall, the national account manager of corporate financial services for the Commonwealth Bank, agrees the pressure for funding will increase over the next decade.
“The franchising sector [has grown] more rapidly than GDP over the past 10 years; it’s an expanding market and therefore a larger slice of the economy,” Nuttall says.
Some lenders have set up accreditation programs for franchise systems, which allow automatic approvals on a franchise business loan. For example, if a Subway franchise was worth $300,000, Nuttall’s team would lend up to $210,000, based on a multiple of the earnings.
Fernwood Women’s Health Clubs says its accredited finance will cover 50 per cent of the average $800,000 purchase price from any of the big four banks.
Franchise lending accreditation teams at the banks and BankWest have usually seen the lucrative “greenfields” – new sites – market as a great place to lend. But that is about to change. More.