StartupSmart:

Bedding retailer Snooze has become the latest franchise to offer vendor finance for its franchisees, following in the footsteps of the likes of Baker’s Delight.

Snooze will offer approved prospective franchisees the option of receiving vendor finance.

This will allow new franchise partners to acquire a store through direct finance from Snooze, rather than a bank or another conventional lender.

Snooze isn’t the first franchise to highlight the option of vendor finance – Jim’s Group is considering it, while Baker’s Delight already offers it.

However, Jason Gehrke, director of the Franchise Advisory Centre, says one of the downsides of vendor finance is that it comes down to the financial strength of the franchisor, which can hinder growth.

“For example, if a franchisor only has the capital reserve to vendor finance 10 franchisees into a group, but they have a target of 20 new outlets, that’s going to be challenging for them,” he says.

“The second challenge is that the buyer may not be as committed to the transaction if they themselves haven’t staked something by way of hurt money.”