No more hard-line funding for franchises, sector pleads

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Franchisees and budding franchisors need better financial funding opportunities say franchise sector representatives who are supporting the Small Business Minister, Bruce Billson’s stance on ‘ultra conservative’ lenders and regulators. His comments during a speech at a G20 Conference in Sydney last week drew support from both the Franchise Council of Australia and Frandata.

The Minister believes access to finance remains a hindrance to Australian business, despite the recovery from the global financial crisis.

“This inability to obtain start-up finance is a strong disincentive to those looking to start a business,” he said.

He then went on to question the practice of lenders often requiring the family home as collateral for business loans.

“The Government wants this to change. A lending environment where families do not have to put their home on the line to obtain finance would lead to more entrepreneurship in Australia,” Billson said.

It's a view welcomed by the Franchise Council of Australia's general manager, Kym De Britt.

“Availability of finance is major issue for franchisors and franchisees alike. It goes hand in hand with the other major challenge, which is finding suitable franchisees.

Once a franchisor has found someone with brand passion, experience and drive, someone they feel confident about making a part of their business, to then be hit with the hurdle of finance struggles is incredibly frustrating for both parties. Unfortunately, it’s also very common,” De Britt said.

“We recently surveyed our membership and can say without a doubt that our members agree with Minister Billson’s stance. We look forward to supporting his plans to even the playing field for people in small business in any way we can,”

Independent franchise sector reporting and information service provider, Frandata, has also endorsed the comments made by Bilson.

Frandata Australia CEO, Darryn McAuliffe said "The Minister's comments are absolutely consistent with the experience in Australia's $130 billion franchise sector. Sound overall health continues to be evidenced in the sector and as an asset class can provide an improved risk profile for lenders.

"Unfortunately the major banks are effectively recognising less than five per cent of franchise systems under their current individual lending programmes and as a result the franchisees of the majority of franchise systems are experiencing frustration when making applications for finance."

HOW DOES THE US FRANCHISE SECTOR GET FUNDS?

McAuliffe said "a collaborative approach between industry and government can substantially improve this situation. In the US almost 50 percent of active franchise brands submit to an independent 'eligibility review' as a first step in accessing support under the government's Small Business Administration (SBA) Act.

"The SBA program is a government initiative to support small business and provides a partial guarantee to improve the lender's 'security' position for qualifying franchise loans".

The franchise sector is reported to have accounted for 11 percent of the 46,000 loans approved under the general lending program of the SBA in 2013. Frandata is used exclusively to provide services to support the SBA program in the US.

McAuliffe said, "Frandata is currently working with the Franchise Council of Australia to develop an industry solution involving specifically accredited franchise systems and arrangements that may increase the realisable value of assets available to banks".

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